In the U.S., Fed chair, Janet Yellen, signaled that interest rate increases are likely to slow. Cooling or delaying rate hikes will be a deliberate attempt to not to choke the economy that is already threatened by collapsing crude oil prices. There are widespread fears that continued decline of oil prices could herald a global financial crisis Part-two in just a few years.
However, beyond the concerns about sliding crude prices, there lies a glimmer of hope. The International Monetary Fund is telling you that the global economy will actually grow in 2016 more than it did in 2015. The IMF’s prediction is 3.4% global economic growth in 2016. You might not believe it and your question would be like, where is IMF drawing its confidence from to make such ambitious economic growth projections?
Underlying benefits of crude price collapse
Well, the answer lies in the underlying benefits of oil price rout. What is happening is that when businesses and consumers are paying less for oil/energy, they save more and their purchase power also improves. As such, cheap energy prices might just help the world sidestep a repeat of the 2008/2009 global economic meltdown.
However, the benefits of falling oil prices are subject the economic strength of oil importers. There are already signs that the Chinese economy is strengthening and that is a positive.
OPEC shot itself in the foot
The refusal by Saudi Arabia and fellow OPEC members to cut oil production is returning to haunt them. Their strategy was to choke North American shale producers who depend on higher oil prices. However, what has happened is that every oil exporter is now running for cover with acute deficits in government budgets in many OPEC countries.
Investors view overdone
Fears over looming financial crisis has been the cause of selloffs in many oil and bank stocks. Investors are betting that crude price will remain low or further decline, making it difficult for energy companies to repay their loans, thus leaving banks with losses. However, the situation may not be as grim as recent selloffs may make it appear, because lower oil prices are actually a stimulus package of sort for businesses and consumers in oil importer countries.