ORLANDO, FLA. — U.S. manufacturers can expect to profit from lower oil prices for the foreseeable future, according to a leading economist.
Zbysko Tabernacki, vice president of economics and country risk for research consultants IHS, said oil prices will continue to fall, following what he called an “unprecedented” collapse in recent months, one which has seen $3.4 trillion of wealth transfer from oil producing countries to oil consuming ones.
“We see a floor price of around $40 a barrel in late 2015, early 2016,” Tabernacki said during a discussion at NPE 2015 in Orlando. “Recovery will be gradual and slow, with the price of a barrel reaching $70 by the end of next year.”
U.S. consumers have seen savings at the gas pump of $133 billion since the price of oil began to decline through January this year.
“That's an effective tax cut,” he said.
The biggest headwind facing the U.S. was the strength of the dollar, which Tabernacki said could have an impact on the country's growth prospects going forward.
He expected the Federal Reserve Bank to raise interest rates in September this year, “but even then, the upward adjustment will be gradual and slow.”
And while the U.S. economy would grow at 3 percent this year, it would settle back to around 2.7 percent thereafter. Pointing towards the nation's capital, Tabernacki said in order for there to be long-term economic stability politicians had to grapple with the issue of entitlements, which he said needed to be reformed.
Overseas, Tabernacki said a “lost decade” in the eurozone was now a reality: “Politicians in the region are facing both day-to-day issues and structural problems that need to be addressed.”
Europe was seeing a rise in manufacturing and would benefit from lower oil prices, however “significant risks remain.”
“There are constant arguments as to whether to address deficit reduction or to increase spending,” he added.
Further afield, Japan was looking at a maximum of 1 or 1.5 percent annual growth, Tabernacki said, bedeviled as it was by factors including an aging population and highly competitive neighbors.
And while vulnerable and in need of structural reform, emerging markets would remain a dominant force going forward, he said, but there were structural changes to come, notably in China, where a slowdown in growth was inevitable.
“China is going through a very difficult structural adjustment right now. There is considerable oversupply in some sectors, notably housing, which impacts the construction supply sector, which is down 20 percent year-on-year. The question is how to stimulate without making the situation worse.
“We don't expect growth in China to exceed 7 percent this year, then it will drop into the 5 percent range. This has major implications for companies who deal with the country.”
Elsewhere, India was rebounding, Tabernacki said, where growth could be stronger than China in the next few years. Russia would be in recession for the next two years, Brazil would be in “mild recession” for a similar period, and Asia and Africa would see strong growth, he added.