The collapse in oil prices over the past few months will not transform the outlook for the world economy, but it should act as an “automatic stabiliser”, providing some reassurance to those fearing the worst. If, for example, the price of Brent settles at $85 per barrel, we estimate that it will boost global demand by around half a percentage point next year. It should also reduce inflation by a similar amount. Although this should make little difference to monetary policy in the US and UK, it is another factor which may encourage the ECB to further loosen policy in the coming months.
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