The Gift

Cheap Oil, an Invitation to Spend

epa04884088 German Finance Minister Wolfgang Schaeuble holds a news conference after a special Eurogroup Finance ministers meeting on the Greek crisis, in Brussels, Belgium, 14 August 2015. Eurozone finance ministers on 14 August approved Greece's third bailout package in five years moving within reach of a deal that will commit the near-bankrupt country to wide-reaching reforms in return for urgently needed funds. The decision paves the way for national parliaments - including the German Bundestag - to vote on the three-year package, which sets a stringent timetable for Athens to cut spending and implement sweeping economic and social reforms. EPA/JULIEN WARNAND +++(c) dpa - Bildfunk+++
In Germany, the living is easy right now.
  • Why it matters

    Why it matters

    With the price of oil so low, Germany can afford to spend which would benefit the country and the rest of the euro area.

  • Facts

    Facts

    • GDP growth in the euro zone reached 0.3 percent for the second quarter of 2015.
    • Germany’s economy grew 0.4 percent in the same period.
    • The oil price has fallen by roughly half since July 2014.
  • Audio

    Audio

  • Pdf

If the oil price stays where it is, Germany’s annual import bill for energy will be a lot lower than anticipated not long ago.

I do not know of any forecast that predicted $41 for a barrel of oil from the North Sea. That means, a key assumption behind the consensus outlook for GDP growth simply does not hold any longer.

As a net importer of oil and gas, recent developments have, on balance, been excellent news for Germany. I am certain that GDP forecasts for this year and next will be revised up.

In the twelve months before the oil price began to collapse in July 2014, the country spent €127 billion on energy from abroad. In the coming year, the bill will be only €60 billion if the oil price stays where it is right now, a saving of no less than 2.2 percent of a year’s GDP.

It is akin to a gift from foreign energy producers such as Russia, Norway or the OPEC – like a big tax cut that is not accompanied by rising government debt.

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