Dáil Éireann Debate, Wednesday - 4 February 2015
63. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he and his EU colleagues have evaluated the economic benefit of a drop in oil prices, with particular reference to the extent to which this may positively affect the economic cost base; and if he will make a statement on the matter. [5172/15]
Amharc ar fhreagraI regularly discuss the evolving economic situation with my counterparts at the monthly ECOFIN meetings, taking into account important developments such as oil price movements. In this regard, it is worth noting that the European Commission will release its Winter Forecasts later this week in which it is expected that it will address the impact of falling oil prices.
From an Irish perspective, the price of Brent crude oil has fallen by about 45% in euro terms (nearly 50% in US dollar terms) since the end of last September, when the macroeconomic projections that underpin Budget 2015 were finalised. For the most part, this is a positive development which is likely to have a favourable impact on real economic activity in Ireland.
Ireland is a net energy importer and, as such, falls in oil prices have a positive impact in the short term. Lower energy prices reduce firms' input costs, thereby improving profitability and competitiveness. At the household level, lower energy prices are likely to lead to an increase in real disposable incomes (i.e. through lower inflation), which can be used to reduce indebtedness or increase consumption on other goods and services.
In terms of quantifying the impact, a reasonable rule of thumb is that, everything else being equal, each sustained €10 per barrel reduction in the price of oil boosts the level of real GDP by somewhere in the region of 0.1 to 0.2 percentage points.
