Morgan Stanley (among many others) have been busy cutting their 2004 and 2005 growth outooks. With Oil prices continuosly hitting new highs this all has some sort of inevitability about it. Whilst it is probable that the slowdown in growth will bring oil back from its current peaks, MS estimate that “the new equilibrium for oil prices is now somewhere in the $30-40 range — well above the $20 average of the 1990s”.
Obviously the oil ‘spike’ is well short of the magnitude of the 1970’s shocks, it is, however, no mere trifle. All of which leads MS’s Eric Chaney to conclude:
If, as we think, the barrel of Brent remains above $40 until the end of this year, the maximum impact of the shock will occur in the first months of 2005, where we see only 0.25%Q GDP growth. Because uncertainties surrounding consumers? and companies? reactions to oil prices are high, we reckon that the odds for a technical recession, i.e., two consecutive declines in quarterly GDP, have become significant despite assurances given by policy-makers.
Source: Morgan Stanley Global Economic Forum
Take care, you have been warned!
Update: this impression is only confirmed by the latest reading on the German-based he ZEW Center for European Economic Research’s index of institutional and analyst sentiment: down to 31.83 from 38.4, and by the decline in French industrial production in August.