Oil Rallies Unlikely to Tip U.S into Recession – Goldman Sachs
Recent surges in the price of crude oil aren’t likely to tip the US into a recession as the effect of weaker connections between energy and the economy will only shave off growth, Goldman Sachs said in a research note.
West Texas Intermediate futures rose 1.4% to $103.92 a barrel on Tuesday while Brent, the international standard, was up 1.1% to $108.71 a barrel. The benchmarks surged in March as Russia’s invasion of Ukraine deepened, prompting global energy sector sanctions.
On a net basis, Goldman Sachs estimates that a $10 a barrel increase in the inflation-adjusted oil price will cut economic growth by 10 to 15 basis points in the US over the next year.
If the firm’s forecast of $125-a-barrel Brent by the fourth quarter occurs, the estimated negative impact on annual growth in that period will be half a percentage point.
“We find that the negative effect of oil price increases on US growth is significantly smaller than during the 1990, 2001, and 2008 recessions,” said Jan Hatzius, head of global investment research, in a note.
“These oil-only impulses support our below-consensus growth views in the US and Europe but are unlikely to trigger a recession on their own.”
The relationship between oil prices and growth has changed over time, Hatzius said. A 50% drop in the share of energy goods and services in consumer spending since the early 1980s in the US has reduced the negative effect of oil price increases on gross domestic product growth via consumption.
And energy capital spending has less of an impact on the US economy now than it did in the 1980s.
Goldman’s analysts said the expenditure now accounts for a smaller share of North American gross domestic product, is less sensitive to oil prices, and is relatively more focused on environmental and social influences of the industry. #Oil Rallies Unlikely to Tip U.S into Recession – Goldman Sachs
