We’ve all been there. You go to a party with a bunch of your mates. You meet a group of girls and spend the evening drinking and dancing.
And after that?
The end of the night comes round and you and your mates have all had one too many, the girls have drifted away and it’s time to go home. But wait. One of your mates (let’s call him China) is still there on the dance floor getting it on with the last remaining girl at the party. You have no choice but to to wait for him to cop off/get her number etc while your hangover slowly but surely begins to kick in.
And there we have the global economy.
It’s 2011 and most of us were ready to leave the party 3 years ago but we’ve been waiting for China to catch us up. And the reason that we haven’t been able to simply leave without him is oil.
Global recessions are not new. We’ve had and survived many of them before but there’s been something fundamentally different about this one. Usually a global recession is followed by a drop in the global oil price. As demand slows, the price of oil drops, and as it does so, it simultaneously enables industry to reboot and begin to build again. But this time we’re 3 years in and the oil price is still at $125 per barrel. Why? Because China’s still on the dancefloor.
China’s (and much of Asia’s) growing economies now account for nearly 50% of demand for global oil production, which has enabled the OPEC countries to maintain high oil prices despite the troubles in the Western economies. We are the glum teenagers sitting round the edge of the dance floor waiting for the music to stop.
But there are signs that the DJ may be winding down and about to play his last tune.
At last, China’s economy is showing signs that it may be faltering. If it does then lower demand for oil from the East will quickly follow and the oil price may begin to fall giving Western industry and agriculture a much needed break.
Global recessions will continue to come and go. But the growing influence of China and the rest of Asia it seems, has added a new dimension – the more people at the party, the longer it goes on for. Unfortunately, the longer it goes on for, the bigger the hangover.