Oil offers further proof that, at the zero-rate bound, monetary policy is pushing on a string, unable to increase consumption.
In reports released last week, both the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) cut their global demand outlook by 9.5 million barrels a day from 2019 levels, driven by a persistent manufacturing downturn for emerging markets. See WSJ Oil Producer’s Best Customers are in Trouble:
That is a troubling sign because emerging economies are crucial to oil-demand growth. They have represented the largest share of oil demand since 2012, reaching 53% in 2018, according to the IEA. Adding to the concern is the fact that non-OECD countries’ oil consumption is still strongly linked to their gross domestic product, according to data from the U.S. Energy Information Administration and Oxford Economics. Unlike OECD countries, a greater proportion of their economies are in manufacturing industries.
It will take much more than resuming travel to resuscitate oil demand, and those countries have much less in their fiscal toolbox to help them do so. In fact, the World Bank projects that many of these countries’ economies will be operating well below their potential even five years from now.
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