Oil Crash Adds New Shock to Limping World Economy
- Low prices will add to central bank worries about inflation
- Cheap energy only offers a growth dividend if there’s demand
The historic collapse in the price of oil is inflicting another shock on a weakened world economy, creating a disinflationary risk for some and severely denting budgets in producers from Saudi Arabia to Russia and Canada.
The rock-bottom price comes amid the worst global slump since the Great Depression, which has already led to interest-rate cuts and other stimulus, stretching the capacity of monetary policy makers once again. In addition to hitting crucial revenue for traditional oil producers, the latest price drop also threatens America’s nascent shale revolution.
The upshot is that although cheap fuel typically provides something of a tax cut for many households and businesses, the fact that so many are locked down by the coronavirus means this time it will likely do more harm than good to the recession-hit global economy.