Bank of America: The vulnerability of the U.S. economy to oil price shocks has fallen below that of Europe

Investing.com – Bank of America (NYSE:BAC) research shows that compared with the early 1970s, the amount of oil required to produce the same amount of global economic GDP is only about one-third of that at the time.

The firm’s analysis indicates that a 10% oil price shock’s impact on U.S. inflation today is about 25 basis points, far lower than the 90 basis points in the 1970s. The impact on economic growth has also fallen from more than 70 basis points earlier to around 5 basis points.

Bank of America attributes the lower sensitivity to reduced oil dependence and the shale oil boom since the 2010s, which has shifted the U.S. to a net exporter of energy.

The firm finds that the euro area’s sensitivity to oil price fluctuations is about twice that of the United States. A 10% oil price shock would raise European inflation by about 40 basis points, with an impact on economic growth of more than 10 basis points.

Bank of America says its higher sensitivity is explained by energy taking up a larger share of the European consumption basket, as well as the region’s status as an oil-importing area.

The firm’s recent forecast revisions reflect an increase in oil prices of roughly 40%. For the U.S., Bank of America cut its growth forecast by about 30 basis points and raised its inflation forecast by 80 basis points. In the euro area, the growth forecast was cut by 60 basis points and the inflation forecast was raised by 160 basis points.

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