World Energy Outlook 2006

Most OECD countries have experienced a worsening of their current account
balances, most obviously the United States. In fact, the deepening of the US
trade deficit since the mid-1990s has been mirrored by the improvement in the
trade balances of oil-exporters and China (Figure 11.23). Higher oil prices
explain most of the increase in that deficit, which has been matched by
increased borrowing by households. In effect, oil-exporters, China and other
countries running trade surpluses are temporarily making good the loss of
purchasing power of American consumers by buying dollar-denominated
financial assets. The recycling of petro-dollars may have helped to mitigate the
rise in long-term interest rates, offsetting the adverse impact of higher energy
prices on real incomes and GDP. These factors are delaying, but not
eradicating, the impact of higher energy prices on US income and output.
share of world GDP
Figure 11.23: Current Account Balances of the United States, China
and Oil Exporters
1.0%
0.5%
0%
–0.5%
–1.0%
–1.5%
–2.0%
1990
Source: IMF (2006b).
1995
2000
2005
Oil exporters China United States
The stage of the economic cycle has probably also played a significant role in
mitigating the impact of higher energy prices. With accelerating economic
activity and expanding investment and production, companies have found it
easier to absorb higher input costs – especially as profits have also been
improving. Developing Asian countries, in particular, have benefited from
particularly strong exports of electronic and other goods, global demand for
which is highly sensitive to cyclical economic trends. In addition, there has
been no oil-supply shock comparable to those in 1973-1974, 1979-1980 and
1990-1991 to undermine consumer and business confidence.
310 World Energy Outlook 2006 - FOCUS ON KEY TOPICS
© OECD/IEA, 2007