Effects of the Latest Oil Price Development on the German Business Cycle

At the beginning of 2016 the price for crude oil plummeted once again. Model simulations show that the greatest positive effect of this fall is to be expected in private consumption. The simulations examined what effect it would have on the national economy if the annual average oil price for the year 2016, assumed in autumn 2015 to be 60 U.S. dollars per barrel, were revised to 40 dollars per barrel. The volume of price-adjusted private consumption should then be some 7 billion euros or 0,5 percentage points higher due to the low oil price. Investment activity and German firms’ exports are also likely to be slightly more buoyant due to the fall in the oil price. However, the effect on the economy as a whole will remain minor as a significant portion of the additional expenditure will be on imported goods. Overall, in 2016 the low oil price can be expected to bring additional economic growth of about 0,2 percentage points.