Economic growth in the world's major industrialized nations could slow by some 0.4 percentage points next year if oil prices are not brought down from their recent $33/bbl-plus perch, according to the latest calculations by Organization for Economic Cooperation and Development economists.
A price that persisted at $33/bbl could chip 0.3% off expected growth in the US, 0.6% off growth in Japan, and 0.5% off growth in the European Union, said the OECD in a report published late last week at the International Monetary Fund-World Bank meeting in Prague.
A rise in consumer price inflation would be another fallout of a sustained high oil price, the OECD believes, with the US, Japan, and the EU likely to see increases of 0.5%, 0.6%, and 0.8%, respectively.
Inflation linked to an overheated oil price would have its most direct impact on the EU as a reflection of its "stronger wage and prices," while Japan would see the worst of the economic output and current-accounts effects of high oil prices.
The new OECD figures come following a revision of the organization's Economic Outlook 67, finalized in May, which set out a "broadly favorable" forecast for global economic growth and inflation.
Nonetheless, OECD economists say an oil shock like that in the mid-1970s is "unlikely to have negative [economic] impacts of the same magnitude as on similar occasions in the past" for three reasons, not least of which is that the "average" OECD economy has greatly diminished its dependence on oil over the last 25 years.
No new oil shock
OECD also takes courage from the fact that oil prices, in real terms, are "still below the levels recorded after the second oil shock at the end of the 1970s," and that, in contrast to previous price shocks, OECD economies are not currently "overheating," and inflation is under control.
Working from the International Energy Agency's assumption that Organization of Petroleum Exporting Countries' crude production capacity and non-OPEC oil supply will each climb by around 1% against global demand-and that fears of product shortages or distribution problems tied to refinery or tanker capacity will not materialize-OECD foresees the oil price declining "moderately" over the next 12-18 months.
"Oil futures suggest that oil prices would decline moderately from a fourth quarter 2000 peak, but stay above $30 through the first quarter 2001, before falling back gradually towards $27/bbl at the end of 2001," said OECD, noting that some market observers "take a more bearish stance."
In the wake of the US government's decision to release 30 million bbl of emergency crude from that nation's Strategic Petroleum Reserve to help cool oil prices, EU finance ministers early last week said they would meet at the end of the week to discuss the possibility of member states following suit. The release of European oil reserves would represent the first time EU states had joined forces to use their collective oil reserves to lower the price of oil.
