Will the global gap expand as the price of oil plunges?

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In recent months, the recovery in the United States, weakening euro zone and slowing Chinese growth reflect global financial gaps which plunging oil prices are likely to widen. Generally, lower energy bills should give both individuals and companies more disposable income to spend and boost economic growth, at least for oil importers.
In recent months, the recovery in the United States, weakening euro zone and slowing Chinese growth reflect global financial gaps which plunging oil prices are likely to widen. Generally, lower energy bills should give both individuals and companies more disposable income to spend and boost economic growth, at least for oil importers. But for countries facing a slowing economy or even deflation the prospect of downward pressure on prices is more worrying.

The probability is the fall in the price of oil nearing 60% will see those already strengthening pick up further. Central bankers in the United States and Europe have clearly expressed the divide over an oil dividend in recent weeks.

The general consensus is that the US will benefit from this drop in oil, which increases the likelihood of an interest rate rise this year, but some see increasing stress elsewhere. Carl Tannenbaum, Chief Economist at Northern Trust, comments ‘you’ve got a handful of places that are seemingly doing very well, like the US, the UK, & Canada but it trails off pretty quickly after that.’

Russia’s recent struggles have highlighted the varying fortunes of the economies such as Brazil, India and China. In China, the second largest global economy, where interest rates have been cut for the first time in two years. Data last week put Chinese inflation at a near five-year low of 1.5%, reflecting economic weakness which is likely to prompt more government stimulus. ‘These positive factors will help to mitigate some signs of growth moderation in China in the second half of 2014, as well as weak growth in Japan’.