There is real concern now about the impact that escalating oil prices will have on the global economy. London has been swamped by truckers and Barcelona by fisherman — all complaining about the rising cost of fuel. American car owners are demonstrating by cutting down on journeys to save gas. Politicians fear high oil prices will spark higher inflation in economies that are already slowing down.
But rising oil prices do not matter a jot to the global economy , at least in theory. Any changes in the price of oil have a neutral effect. The cost to those countries buying it is offset by the money made by those selling it. Overall the effect of a rise, or indeed a fall, in oil prices is nil. The cash is simply being shifted around the globe. It’s swings and roundabouts, as they say.
But if the U.S. economy goes down, surely it will take the rest of the world with it? Not according to Paul Donovan, Senior Economist at UBS. He points out that countries in the Middle East are consuming far more than they were 10 to 15 years ago, as evidenced by the huge building projects in Dubai.
“You are rebalancing power in the world economy, there is no doubt about that,” says Donovan. “It’s very disruptive but the net effect is simply to redistribute wealth from countries like the U.S. and UK to the Middle East or countries like Russia.”
In other words, Europe and America may be suffering but other continents are gaining, so no need to fear a global recession. The Middle East and Russia are strong enough to prop up the whole system. Do you agree?
Posted by: Anchor and correspondent, Max Foster
Filed under: Business
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