The 50 % fall in oil prices (from around $100/b beginning last summer to less than $50/b as of January 2015 – chart 1) is – over the short term at least – the most significant development regarding near term economic activity.

The strongest – and most immediate impact – is on household consumption. With a $1 fall in oil prices lowering gasoline prices by 2.4 cents, the current $60 fall in oil prices has thus freed 1.5 % of purchasing power for households (equivalent to 1% of GDP – chart 1). As far as oil producers are concerned, the effect is of course negative. But the estimated impact on their investment (and thus on GDP) is lower… and lagged! The halving of oil prices is expected to take 0.5 % off GDP growth… but mainly in 2016!

Given these latest developments, we expect GDP growth to reach 3% in the fourth quarter (with private consumption increasing by more than 4 % annual rate) as well as in the first quarter of 2015. If oil prices do not fall further, the positive effect should fade… while the negative one on investment would then start to bite from the end of 2015 on (chart 3). All in all, GDP growth should nevertheless accelerate from 2.3 % in 2014 to close to 3 % in 2015.

 

 

 
The Macro Team