Oil has more than doubled in six months, and a World Bank vice president says that could cost large importers a full point of growth. Indermit Gill made the warning in a blog post on Tuesday, naming China, Indonesia, South Africa and Turkey.
“If this lasts, oil could shave a full percentage point of growth from oil importers like China, Indonesia, South Africa, and Turkey,” Gill said.
How the math works
Gill pointed to estimates in a forthcoming World Bank publication. A 10% rise in oil that persists for several years can trim growth in commodity-importing developing economies by a tenth of a percentage point. Prices have gone up far more than that.
The hit lands on economies still trying to recover from the pandemic. Before the war began, South Africa was expected to grow about 2% a year in 2022 and 2023, Turkey 2% to 3%, and China and Indonesia 5%. Gill said the war has made existing uncertainties, from debt to inflation, worse. “The war has aggravated those uncertainties in ways that will reverberate across the world, harming the most vulnerable people in the most fragile places,” he said. He added that it is too soon to say how far the conflict will change the global outlook.
Food as well as fuel
Russia and Ukraine together supply more than 20% of the world’s wheat exports. Some countries in the Middle East, Central Asia, Africa and Europe depend heavily on them for food.
Goldman sees China missing its target
Goldman Sachs went further on China. It said the country is on course to miss its growth target by 1 percentage point this year. Beijing said at the weekend it would speed up fiscal spending and aim for growth of “about 5.5 per cent.” Goldman left its own forecast at 4.5%, citing oil, falling housing sales and persistent local Covid-19 outbreaks.
The bank estimates a $20 per barrel rise in oil cuts Chinese growth by 0.3 percentage points. On its price forecast, that means a drag of 0.5 point this year. Goldman said Beijing would need to ease policy faster to keep growth from sliding below 4.5%.
Missing the target would be unusual. China has reported growth in line with or above the bottom of its GDP target range every year since 2014. Goldman still thinks the government is unlikely to let growth fall much further below 4.5%, given what a stable job market and financial system mean in a politically important year.
Oil has jumped 30% since Russia invaded Ukraine on February 24.
Sources
- World Bank official says war-driven oil price hikes to slash growth for big importers
- Goldman says China to miss GDP target on oil shock as World Bank slashes growth for big importers
Sources
- World Bank official says war-driven oil price hikes to slash growth for…
- Goldman says China to miss GDP target on oil shock as World Bank…
