Dropping oil price a US$1 trillion boost for GDP and IT spending in H1 2015

CanalysWhat has proven a massive hit for the oil and gas industry may turn out to be a silver lining for the IT industry and GDP as a whole in the first half of this year.

According to Canalys, business and consumer IT spending will be boosted by the current oil shock, as prices remain below US$50 per barrel. It believes the reduction in prices will provide a short-term economic stimulus equivalent to a large tax cut, boosting corporate profits and consumer disposable incomes, which will filter into IT spending.

“Price falls translate into a transfer of wealth from producers to importers. Oil producers received approximately US$340 billion less in the second half of 2014 compared with the first half of the year, based on average monthly production and prices. The difference will be even more significant if prices remain at US$50 per barrel and production continues at the same level for the next six months. If this scenario happens, producers will receive almost US$1 trillion dollars less compared with the first half of 2014,” said Matthew Ball, Principal Analyst of Canalys.

The IMF’s decision to reduce its global GDP forecast for 2015 from 3.8 percent to 3.5 percent is wrong, as the lower oil price is estimated to increase the rate by an additional 0.5 percent to 0.7 percent. This is relatively conservative given the assumption that a 10 percent fall in oil prices will lead to a 0.2 percent rise in GDP.

“Increasing GDP has historically resulted in greater IT spending but there will be clear winners and losers. The winners are the net importing countries, particularly manufacturing-based economies, such as China, Germany, Japan, South Korea, and Turkey. Those countries that have been subsidising to offset high oil prices, such as India and Indonesia, will also benefit strongly,” said Ball.

Canalys has raised growth forecasts for 2015 in key technology segments, including smart phones (16 percent), PCs (4 percent), x86 servers (4 percent), enterprise networking (5 percent), IT security (7 percent), and unified communications (4 percent).

But the benefits of the oil shock will be short lived. The mean oil price in the first half of 2015 is expected to rise to between US$60 and US$70 per barrel, before rebounding to US$80. An upward price shock is anticipated later.

“The current low price means exploration and investment in developing new sources will be cancelled or delayed until it is economically feasible. This affects investment in shale oil and gas outside of the United States, leading to lower supply and higher demand in the future. Innovation will be affected, especially in developing new technologies to drive energy efficiency in sectors such as renewable energy, data centres and automobiles,” said Phill Pexton, Analyst of Canalys.

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