Business Comment: Terry Murden
Is the oil price fall good or bad for the wider economy?
They say astrology was invented so economics would seem like an accurate science. Take the oil price. The range of opinion could barely have been wider on the impact it will have on the wider economy.
Brian Ashcroft, professor of economics at Strathclyde university’s Fraser of Allander Institute points to the “positive effects of lower fuel prices on firms and consumers”, arguing that it will outweigh the loss of jobs and investment in the North Sea. “The falling oil price and recovering investment could provide a welcome boost to the recovery,” he declared.
However, another report published only last week by accountants Grant Thornton and the Institute of Chartered Accountants in England and Wales (ICAEW) was rather less optimistic about the effect of low oil prices. It said capital spending in Scotland rose by only 1% over the last year (when prices plunged) against 4.5% in the previous 12 months (when they were high).
Grant Thornton’s Scotland managing partner, Kevin Engel, said: “Given the impact lower oil prices, UK elections, weak European economic growth and overseas political unrest, it is not surprising confidence has dropped.”
Can both interpretations be correct?
As with all forecasts, especially from economists, they come with a cast iron guarantee that they may not prove reliable.
Mr Engel noted in his otherwise gloomy prognosis that: “While such a significant drop in confidence is naturally concerning, there are reasons to be optimistic…”
A bit of hasty backtracking there, probably because it doesn’t do well to tell your clients that their businesses have nothing to look forward to.
Prof Ashcroft’s analysis is a marvellous piece of escapology that Houdini would have found astonishing. He writes: “The absence of good data and uncertainty about future oil prices allow only a crude estimate (my italics) of the impact on the Scottish economy of the fall in oil prices….”
And here’s the really good bit…
“Nevertheless, we estimate that the impact on employment this year could range from 9,700 net additional jobs to a net job loss of 600 on best and worst case scenarios.”
What! So the headlines in today’s papers about an extra 10,000 jobs (nicely rounded up) could easily have referred to the loss 600 jobs.
These mathematical gymnastics essentially tell us that few experts have a Scooby about the true impact of the oil price fall. It might be a good thing, but then again…
We might just as well as King Kenny himself. Mebbes aye, mebbes naw. So who can we trust. Well, there are some who say there will be a benefit for those companies that have been priced out of the skilled labour market during oil’s boom times.
As the oil majors expanded and battled with each other to attract top engineering talent, they were prepared to throw money at those prepared to up sticks and move north.
Except many of them didn’t. A lot of oil workers actually stay in digs in the northeast. Nevertheless, jobs were created. For companies that could not match their rising salary demands, the oil price fall and subsequent layoffs means they can now afford to pay them.
This will fill vacancies and help these companies to prosper.
This is not “economist” speak. It comes from recruitment agencies such Eden Scott and FWB Park Brown who are not in the business of forecasting, only in finding the right people for their clients.
Are they likely to find 10,000 jobs? Better ask King Kenny.
See also >> http://dailybusinessgroup.co.uk/2014/12/oil-crisis-helping-other-firms-find-skilled-worker