Dáil Éireann Debate, Thursday - 15 January 2015
66. Deputy Brendan Griffin asked the Minister for Finance the level of overall positive impact on economic growth predicted from the fall in oil, diesel and petrol costs; the measures that can be taken to maximise the positive impact of such declines; if it is expected that the lower prices will last throughout 2015; and if he will make a statement on the matter. [1992/15]
Amharc ar fhreagraThe price of Brent crude oil has fallen considerably since June 2014. For the most part, this is a positive development and is likely to have a favourable impact on real economic activity in Ireland.
As Ireland is a net energy importer, falls in oil prices have a positive impact in the short term. Lower energy prices reduce firms' input costs, thereby improving their profitability and competitiveness. At the household level, lower energy prices are likely to lead to an increase in real disposable incomes, which can be used to reduce indebtedness or increase consumption on other goods and services.
A reasonable rule of thumb - everything else being equal - is that each sustained €10 per barrel reduction in the price of oil boosts the level of real GDP by between 0.1 and 0.2 percentage points.
It is also important to point out that the decline in oil prices will also reduce inflation. At the level of the euro area, the latest figures show that inflation moved into negative territory in December for the first time since 2009. Falling oil prices will further weigh on inflation in the short-term. If expectations of falling prices were to become entrenched, the negative impact on the euro area economy could potentially be severe.
For the purposes of compiling my Department's macroeconomic forecasts, my officials make the purely technical assumption that Brent crude oil prices will move in line with futures prices. The latest forecasts, which were published for Budget 2015, included the assumption that the price of Brent crude oil in 2015 would be $103 per barrel. Prices have fallen by close to 50 per cent since these macroeconomic projections were finalised in late September 2014. My Department will update its oil price assumptions in the next round of forecasting in April 2015. In the meantime, my Department willl continue to monitor oil price developments closely.
