Higher-than-expected oil prices, stemming from potential disruptions in the Middle East’s oil supply due to conflicts, could significantly impact global economic growth and lead to a surge in inflation, Fitch Ratings said in its latest Global Economic Outlook (GEO) report.
According to Fitch’s September GEO, a scenario with average oil prices of $75 per barrel in 2024 and $70 per barrel in 2025 could be upended if oil prices spike to $120 per barrel in 2024 and $100 per barrel in 2025 due to supply restrictions.
‘’Using simulations from the Oxford Economics Global Economic Model, we estimated the impact of higher oil prices throughout 2024-2025 on our baseline GEO growth and inflation forecasts. Our scenario assumes that, due to supply restrictions, oil prices average $120/bbl in 2024 and $100/bbl in 2025,” said the global ratings agency.
The simulations reveal a potential 0.4 percentage point (pp) reduction in world gross domestic product (GDP) growth in 2024, with a lingering 0.1 pp lower growth in 2025. Despite the modest rebound anticipated in 2025, Fitch suggests a persistent moderate impact beyond the initial shock.
Higher oil prices would dampen GDP growth in almost all the GEO’s ‘Fitch 20’ economies, although the impact would largely dissipate in 2025, according to the ratings agency. The absence of a significant growth rebound in 2025 implies a longer-lasting, if generally moderate, impact on GDP levels in most countries, which could affect assessments of potential growth.
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Updated: 13 Nov 2023, 07:33 PM IST