Eurozone: Impact of oil prices is very significant and underestimated – Natixis

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Analysts at Natixis, point out that the impact of the oil price on the Eurozone economy is very significant and underestimated.

Key Quotes: 

“As we have just seen, a 10 euro per barrel rise in the oil price can lead to, for the euro zone:
– An income loss of 0.3 percentage point of GDP; 
– A 20 basis point rise in the long-term interest rate.

The negative effect of a rise in the oil price on the euro-zone economy is therefore significant.”
 
“When the oil price rises (for example), the euro-zone economy is affected in two ways, through: The loss of income caused by the deterioration in the trade balance for energy, despite the increase in exports to oil-exporting countries; The rise in interest rates that takes place if the rise in the oil price drives inflation above the ECB’s target and drives up expected inflation. The sum of these two effects, which we estimate quantitatively, is considerable, and it is fortunate that the increase in shale oil production in the United States is preventing a marked rise in the oil price.”
 

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