1 Why oil price slump hasn’t kickstarted global
economy (Kenneth Rogoff in The Guardian) One of the biggest economic surprises
of 2015 is that the stunning drop in global oil prices did not deliver a bigger
boost to global growth. Most macroeconomic models suggest that the impact on
global growth has been less than expected – perhaps 0.5% of global GDP.
A decline in oil prices is to some extent a zero-sum
game, with producers losing and consumers gaining. The usual thinking is that
lower prices stimulate global demand, because consumers are likely to spend
most of the windfall, whereas producers typically adjust by cutting back
savings.
In 2015, though, this behavioural difference has
been less pronounced than usual. One reason is that emerging market energy
importers have a much larger global economic footprint than they did in the
1980s, and their approach to oil markets is much more interventionist than in
the advanced countries.
Countries such as India and China stabilise retail
energy markets through government-financed subsidies to keep price down for
consumers. The costs of these subsidies had become quite massive as oil prices
peaked, and many countries were already looking hard for ways to cut back.
Thus, as oil prices have fallen, emerging market governments have taken
advantage of the opportunity to reduce the fiscal subsidies.
At the same time, many oil exporters are being
forced to scale back expenditure plans in the face of sharply falling revenues.
Even Saudi Arabia, despite its vast oil and financial reserves, has come under
strain, owing to a rapidly rising population and higher military spending
associated with conflicts in the Middle East.
Also restraining growth is a sharp decline in
energy-related investment. After years of rapid growth, global investment in
oil production and exploration has fallen by $150bn in 2015. Eventually, this
will feed back into prices, but only slowly and gradually: futures markets have
oil prices rising to $60 a barrel only by 2020.
In short, oil prices were not quite as consequential
for global growth in 2015 as seemed likely at the beginning of the year. And
strong reserve positions and relatively conservative macroeconomic policies
have enabled most major producers to weather enormous fiscal stress so far,
without falling into crisis. But next year could be different, and not in a
good way – especially for producers.
2 The global impact of Fed rate rise (Kamal Ahmed on
BBC) After nearly a decade of what has been, essentially, a global economic
effort - and experiment - to save the world from financial calamity, the
Federal Reserve, the central bank to the world's largest economy, has decided,
finally, to try a touch of "normalisation".
I'm not sure anyone thought that, eight years on, we
would still be in a near zero interest rate world. Or, in cases such as the
eurozone, a negative interest rate world. The financial crisis - a banking
crisis which so damaged confidence and put the world in "risk-off"
mode - more fundamentally damaged the global economy than many initially
predicted.
Now the Federal Reserve has moved interest rates up
a small notch. When America stirs, the rest of the world takes notice. Rising
US interest rates could mean higher debt repayments for emerging market
governments and businesses - as the amount owed is denominated in dollars.
And with higher interest rates in America,
investment capital will be encouraged across the Atlantic and away from Asia in
the hunt for better returns. That could affect Europe as well.
On the upside, the stronger dollar which has
followed the rise might be good for European and Asian economies as it means exports
to America are cheaper. Savers who have seen years of very low interest rates
are likely to heave a sigh of relief as, finally, the world starts approaching
economic normality.
3 Malls lose some luster as holiday sales go online
(San Francisco Chronicle) More often shoppers in the US are making the decision
to sit on their couches rather than head to stores this holiday season. Online
sales growth so far this holiday season is surpassing growth in sales at
physical stores, according to First Data, which analyzed online and in-store
payments from Oct. 31 through Monday.
Sales growth for stores is up 2 percent, while
online sales rose 4.6 percent, according to First Data. Total spending,
including sales in both physical stores and online, climbed 2.4 percent,
stronger than the 1.8 percent growth during the same period last year.
While physical stores still account for the majority
of spending, the uneven growth between buying at locations and on websites
signals the continuation of a big shift in how US consumers are shopping.
The overall shift to online spending is largely due
to more retailers working to improve their websites and offer speedier delivery
on orders placed online. As a result, shoppers, who increasingly are looking
for convenience, are spending more of their holiday budgets online.
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