Summary:
Perhaps advanced economies around the world have a new reason to feel hopeful about establishing a more stable foothold for growth next year, if some of the more pessimistic forecasts regarding oil come to fruition.
However, the possibility of a drop to around $60 per barrel in 2025, as projected by Citigroup to JPMorgan Chase, could improve the chances for the United States and its counterparts to navigate the impact of high borrowing costs without a devastating recession. Tim Drayson, head of the economics department at Legal & General Investment Management in London and a former official at the UK Treasury, states, "The chances of achieving a soft landing will increase—this applies to both Europe and the United States. Ultimately, it will be beneficial for the world if interest rates return to a decline, helping central banks to return to neutrality."
As for the monetary institutions preparing to lower interest rates this month, the recent drop in oil prices has indeed opened the door wide for easing monetary policy. European Central Bank officials are set to announce a second interest rate cut on Thursday, while the Federal Reserve is widely expected to begin its own monetary easing cycle in less than a week.
The promise of at least $60 oil for those investors and policymakers who believe it has the potential to further reduce headline inflation and provide a boost to consumers’ disposable incomes. It’s a rare bright spot in a world fraught with risks ranging from potential trade wars to worries about what China’s deflationary spiral might do to global demand. Ben Luckock, Trafigura’s head of oil, told an Asia conference in Singapore on Monday that Brent crude was likely to head to $60 relatively soon. Gunvor Group Ltd., another major trader, warned that oil markets would deteriorate, with weak demand part of the equation, particularly as the U.S. economy loses steam and the backdrop of deflation in China becomes ever more apparent. "This really points to the direction of the world's two largest economies, China is experiencing a structural slowdown, which continues, and then the United States comes at the same pace," said Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis SA.
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