Will Lower Oil Prices Mean Improved Economic Growth?

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Oil-decline

THE ANSWER is both Yes and No … depending upon which country you live in.

Oil-GDPLast weekend’s Financial Review reported an analysis by Oxford Economics, which predicted the likely effect upon GDP during 2015-16 … of oil being at $US40 Vs. $US84 per barrel.

And a quick summary of that is included over on the right.

As far as Australia is concerned, Warren Hogan (ANZ’s chief economist) says “… the $1 a litre petrol currently being pumped in Sydney bowsers is akin to half a 0.25 percentage interest cut.”

Clearly, those oil-producing countries around the world will suffer. However, one country’s loss is another country’s gain.

The World Bank feels windfall savings (through price reductions) will lead to improved global economic demand — particularly, in those countries which rely upon foreign oil. And in return, this will help address the present imbalance in economic growth.

Furthermore, the World Bank predicts China’s current account surplus could add between 0.4-0.7% to its GDP, during 2015 alone.

For Australia …

Therefore, not only will our economy and consumers benefit from lower oil (ie: petrol) prices … but our major trading partners — China, US, India and Japan — will also enjoy advantages from lower oil prices as well.

As such, this should translate into a fourfold benefit for Australia …

  • A decline in the present inflation rate;
  • Improved consumer confidence at home;
  • A sustained lower dollar to help exporters; and
  • Improved demand for what our exporters produce …

… over the next 12 to 18 months.

Bottom Line: According to CBRE research, 2014 saw a record $26.8 billion in Commercial property deals. Office sales represented over half that total; and 23% of purchases were made by foreign investors.

With most Industry experts expecting 2015 to be another strong year, improved confidence among local buyers could provide some welcome competition to those overseas purchasers.

Chris Lang

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