Global Economy Gets Tailwind From Falling Energy Prices

Lower natural-gas prices could boost European output by 1.5%, economists estimate

By Tom Fairless of The WSJ. 

I hope this good news lasts. When resource prices fall, supply shifts to the right, lowering prices of the goods we buy while more of them get produced.

Excerpts:

"Energy prices are roiling the global economy for the second time in a year. 

This time, it’s good news. Plunging oil and natural-gas prices are pumping up economic growth, putting money into consumers’ pockets, boosting confidence and easing pressures on government budgets.

It is the reverse of the energy-price shock a year ago, when Russia’s invasion of Ukraine raised concerns about a deep recession in Europe and beyond."

"The price of a barrel of oil has fallen by more than a third since the middle of last year, to about $77 from $121"

"In Europe, benchmark wholesale natural-gas prices have slumped by almost 90% since last summer"

"advanced economies have reduced the energy consumed per unit of output since the 1970s."

"For Europe, declining natural-gas prices represent enormous cost savings, equal to about 3.5% of gross domestic product this year for Italy, and about 2% of GDP for Germany, Portugal and Spain"

"The energy stimulus could boost eurozone output by around 1.5%, roughly equivalent to a year’s worth of growth"

"The eurozone economy is now expected to grow by 0.7% this year, compared with an October forecast for a 1.3% contraction"

"Unlike Europe, where higher energy prices transfer money from locals to foreigners, the U.S. is a net energy exporter. Higher prices therefore have more ambiguous effects: They redistribute money from American households to American energy producers and their shareholders.

However, households are more likely to spend than oil producers, meaning even in the U.S., higher oil prices on net subtract from growth. A doubling of oil prices that lasts for a full year cumulatively reduces real household spending by up to 3.7%"

"The fall in energy prices cuts both ways. On the one hand, it lowers headline inflation. As a result, unions may come under pressure to settle for lower pay gains, lessening the risk of a wage-price spiral."

"On the other hand, lower energy prices act like a tax cut, boosting consumer spending, which might add to inflation pressure outside of energy."