Oil as a decisive factor 2016-2020
Oil has gone down to its minimum historical rank within the last decade, the barrel was below 30 USD. Now is at 50 USD. In June 2014 it was at 115 USD.
Beyond geopolitical issues that might have influenced this current situation, there are other aspects to take into account. The increase of oil supply -even higher due to Iran becoming a stakeholder again; low demand, due to China’s crisis; and USA’s reserves, are responsible for this situation.
If economic deceleration is taken into consideration, indicating a global economic activity without any sight of recovery and almost completely plain, unbalance between supply and demand will continue. Therefore, a long period with a low oil price can be foreseen. Except if geopolitical matters take a different path with oil prices increase, they will remain low.
In any case, oil prices are cyclic and they will rise again. It will not increase over 120 USD, but it could stay between 60 and 75 USD a little bit over fracking prices.
If the situation must go like this, whenever China might be capable to balance its new growth model, this might imply having back China’s capability to still be competitive in a low oil price scenario.
In 2020 these two factors, new growth Chinese model and low oil price rise, will come together.
5 key points for a 2020 more strengthened economy
–China’s capability to speed towards a new economic model, in order recovery before previewed and to grow within 8 and 9% rates.
–Developing countries must empower their path towards economic growth models -some are already there- to improve their productivity and competitiveness. (The USA will have growth rates of 2.3% within 2016 and 2020, although Russia is maintaining its recession rate in 0.7% and might increase up to 1% later on).
–Emerging countries must adopt this new model cutting off basic commodities dependence, in order to turn upside down deceleration and growth is strengthen.
-Take to a low level geopolitical tensions.
-Restrictive cycle must not slow down economic growth, due to Federal Reserve interest rate.
These main key point have a common element, based upon new economic growth model boosting and adoption sustained by innovation, education and technology.
Over these foundations global economy can improve and be competitive in a global world, otherwise, recovery will take longer.