Oil prices will not trigger a global recession, even if they remain persistently above $40 a barrel level, top foreign analysts told the Mail & Guardian this week.
The experts, at HSBC Securities’ London office, spoke as Brent Crude oil prices reached a 21-year high of $39 a barrel, sparking fears of a global recession and leading to calls for the Organisation of Petroleum Exporting Countries (Opec) to increase supplies.
The past three world recessions have been triggered by oil price surges. HSBC analyst Gwyn Hacche, attributed the oil price spike in part to fears of supply disruptions owing to turmoil in the Middle East — but more importantly to growing demand owing to the global recovery.
Hacche said highest demand came from industrialising China, whose economy grew 10% year-on-year in the first quarter and contributed 35% of world growth last year. Positive quarter-on-quarter growth of the United States, Japan and Europe had also fuelled demand. However, Western economies now produced two-thirds of their output in services, which consumed less fuel.
In a recent review, HSBC’s Janet Henry said previous oil price shocks triggered recessions by sparking a vicious cycle — headline inflation, higher wage demands and further inflation, forcing central banks to raise interest rates.
However, in the modern environment of low inflation and credible central bank inflation targeting, this was unlikely. This had held true even though oil prices had risen by between 10% and 15% in Yen and Euro terms in the first quarter of this year compared to the second half of last year.
At $60 a barrel, she estimated the world economy would lose 0,5 % in real GDP growth this year and 0,3% next year. Inflation would increase by 0,7% and 0,8% respectively.
Some analysts also attributed the price spike to speculation rather than physical shortage, saying the bubble was driven by hedge funds withdrawing cash from bonds and equities.
Ed Buckley, of Vizor Investment Management, told Reuters that “in the next three to six months, $50 a barrel is not out of the question”.
Opec is producing 25,5-million barrels a day, two million above target.
European Union energy commissioner Loyola de Palacio this week called on Opec to raise output at an energy forum in Amsterdam this weekend or “risk losing credibility”. However, the earliest Opec can make a formal output decision is when all its members meet in Lebanon in two weeks.