The Doha failure weighs on world markets, prices nailed down in Europe – The Republic

Rome – For years, the oil market has been characterized by two certainties: the OPEC cartel of producing countries was considered relentlessly effective in keeping up the cost crude oil. The high price of oil was then seen as bad news for the global economy since the exporting of crude oil countries make up just 12 percent of the world’s gross domestic product, and therefore the majority of the states suffering from high costs. The failure of the Doha summit, which also involved outside OPEC countries such as Mexico and Russia is the latest evidence of chalking of these truths. The contrasts between Saudi Arabia and Iran, returned to export oil in a sustained manner after the termination of international sanctions, have made it impossible to agree on a production freeze, which would have contributed to the price rise. The collapse of the cost of crude oil this morning is dragging down the world markets, which for months see the declines in oil prices as bad news for the fate of the international recovery.

The descent of oil prices continue to weigh economic estate of producer countries such as Brazil and Russia, already badly in recession and whose currencies are in free fall this morning. The slowdown in domestic demand, in addition to fiscal tightening wanted by governments in response to the collapse of tax revenue from the sale of oil, will contribute, as they have done in recent months, to slow global growth.
The effect on the economies importers is less easy to understand. In theory, consumers in countries such as Italy and France should benefit from lower oil prices and buy another. The production costs of their companies should fall, making them more competitive. however, this effect was lower than expected. Many consumers, for example, preferred to put in the bank the money they saved on gasoline. If the oil-producing companies have obviously had to cut their investments, manufacturers of consumer goods have not seen that increase in demand that would be expected.

For the Internazione chief economist of the IMF, Maurice Obstfeld, this paradox can be explained in part by the position in which they are the central banks. In the past, when the price of oil went down, the monetary authorities responded by cutting interest rates to bring in higher inflation. Today, the rates in economies such as the US, the eurozone and Britain are virtually zero, making it much more difficult to provide the same type of demand stimulus.

This new dynamic is particularly a problem for the euro area. The European Central Bank expects that prices will grow by just 0.1%, well below its target of just below 2%. President Mario Draghi and his colleagues want to in fact avoid the risk of a deflationary spiral, in which consumers do not buy anything today because they expect that the goods will cost less tomorrow. Last month, the ECB announced a substantial package of measures, which include an expansion of the stock purchase program ( “quantitative easing”) and a further fall in interest rates on deposits.

The ECB’s Governing Council meets again this week. It ‘very difficult to be taken other measures, while it is very likely that Draghi repeated his readiness to act again if necessary. It is a scenario that the ECB would avoid gladly, but with the failure of the summit yesterday became a possibility more likely.

Topics:

Doha summit

deflation

oil

bce

Starring:

mario dragons

mario yepes