when global activity showed signs of deceleration and metals prices continued to slide. Around that period, changes in supply conditions are estimated to have accounted for about 30 percent of the price drop. Various other indicators used to proxy demand shifts in commodity markets also point to downward demand pressures on oil prices (Kilian and Zhou 2017).

# **3. How did the recent oil price collapse impact the global economy?**

The plunge in oil prices that began in mid-2014 led to expectations of global growth windfalls (Arezki and Blanchard 2015; Baffes et al. 2015; IMF 2014; OECD 2014). Estimates produced at the time suggested that a 50 percent supply-driven decline in oil prices could lift global GDP by around 0.8 percent over the medium term. Such a boost to global aggregate demand was expected to result from a transfer of income and wealth from oil-exporting economies, which tend to have a high aggregate savings rate, to oil-importing economies, where the propensity to spend is higher. And while lower oil prices were anticipated to negatively impact investment in the oil industry, this was expected to have been more than offset by lower energy costs for consumers and for energy-intensive sectors, including transportation, manufacturing, and agricultural sectors.

The oil price plunge, however, was accompanied by a global slowdown (Figure 5). Global growth moderated from 2.9 percent in 2014 to 2.8 percent in 2015, before dropping to a post-crisis low of 2.4 percent in 2016, amid weakening global trade and subdued capital flows to EMDEs, and broadbased weakness in commodity prices. A sudden contraction in government spending, domestic demand, and imports in oil-exporting economies had some dampening effects, but the most important factor behind disappointing global growth during and after the oil price plunge was a failed recovery in oil-importing EMDEs and advanced economies, particularly the United States. Growth disappointments among oil importers were partially reversed in 2017, as a broad-based cyclical recovery got underway. However, forecast downgrades continued among a number of oilexporting EMDEs. Overall, global growth was overestimated by an average of 0.2 percentage point per year over the period 2014–17, with 50 percent explained by oil-exporting EMDEs, 35 percent by oil-importing EMDEs, and the remainder by advanced economies.

While country-specific factors and offsetting forces help explain the absence of a positive impulse for the global economy, the nature and amplitude of the oil shock itself might have played a role. First, the decline in oil prices was partly driven by weakening demand prospects, hence limiting the associated stimulus effect for the global economy. For instance, purely demand-driven declines in oil prices, as observed during major global slowdown episodes, have had a net negative impact on activity in oil-importing economies, including in EMDEs (Aastveit, Bjørnland, and Thorsrud 2014; Caldara, Cavallo, and Iacoviello 2016).

Second, oil price shocks could have asymmetric effects. In particular, the positive effect of an oil price decline on activity in oil importers is likely smaller than the negative effect of an equivalent increase in the oil price (Hamilton 2009, 2011). Frictions in the reallocation of factors of production between sectors, as well as the related loss of specialized labor and capital, are generally put forward as the source of such asymmetric effects. The fact that the decline in oil prices between June 2014 and January 2016 was one of the three largest since World War II, and the most persistent since 1986, implies that associated adjustment costs might have been particularly sizeable, overshadowing benefits for oil importers, at least temporarily.

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