Dombrovskis sees cheaper oil boosting Europe’s GDP growth

2015-01-30 11:38:05

Low oil prices are expected to propel the European Union economy forward, boosting growth in gross domestic product by 0.4 percentage points or more, European Commission Vice President Valdis Dombrovskis said.

Oil’s impact on the EU economy has been estimated to boost GDP growth by 0.4 to 0.7 percentage point, Dombrovskis said. Even at the lower end of that range, it is expected to help expansion while also pushing inflation lower, he said in a Jan. 29 interview in Brussels.

“Preliminary assessment shows that it has a positive effect on the EU economy,” said Dombrovskis, a former Lativan prime minister who holds the commission’s monetary union portfolio.

“It has also another effect, that the headline inflation is declining and indeed in December already we had deflation,” he said, noting that downward price pressures have spurred the European Central Bank to announce quantitative easing measures. The Brussels-based commission is due to offer a formal assessment when it updates its economic forecasts next week.

The price of oil has dropped from $115 a barrel in June to below $50 a barrel. According to the International Monetary Fund, the decline’s benefit to global growth will be offset by low inflation and economic weakness in Asia and Europe.

In the third quarter, the euro-area economy grew 0.2 percent, according to the most recent EU data. Preliminary fourth-quarter figures are due on Feb. 13.

EU Economy

Dombrovskis said the EU economy also must contend with spillovers from the conflict in Ukraine and the EU’s sanctions against Russia, along with the ruble’s subsequent drop.

“Our current assessment is still that the overall impact on the EU’s economy is limited, but it’s not evenly distributed between countries,” Dombrovskis said. “There are countries and sectors which are affected and where we also need to look how we can support those countries and sectors, and it’s the effect both of the Russian embargo and collapse of ruble.”

The ruble slumped Thursday on concern tougher sanctions will be imposed on the nation’s companies as the conflict in eastern Ukraine flares up. The currency, the worst performer in emerging markets this month, weakened for a second day as European Union foreign ministers meet in Brussels to discuss adding names to and extending the duration of a black list of individuals and companies.