Euler Hermes ACI Chief Economist: Oil And Water Don’t Mix

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Economy strong despite energy price spikes brought about by Gulf Coast hurricanes, cold weather.

Energy cost spikes in crude oil, heating oil, and natural gas could be a drag on the currently strong U.S. economy, according to economic analysis from global trade credit insurer Euler Hermes ACI.

Euler Hermes ACI Chief Economist Dan North, during a recent presentation in Chicago, predicted that the latest oil price shocks have not yet had their total effect on the economy. North pointed to historical data to emphasize his findings, stating, “Since the 1970s, every oil price shock has been followed by a weaker economy. While the most recent shock has been relatively modest, it has – and will continue to – put a drag on the economy.”

North disputed the notion that the United States is less dependent on oil today than in years past. “Evidence suggests that we now consume more oil as a percentage of GDP than we did in the 1990s,” North said. He added that the nation now is more dependent on oil imports, which could present a challenge. “Unlike any of the previous oil shocks in the past 30 years, we now import more oil than we produce. In theory, this doesn’t matter in a free global market, but, if political difficulties arise, it could make a difference.”

Another economic headwind is the persistently flattening yield curve, as the Federal Reserve continues to deliberately attempt to slow the economy. “The steepness of the yield curve is a very good predictor of the economy,” North said. “Every time the steepness goes negative, the economy turns down several quarters later. The yield curve is currently getting very flat as a result of deliberate Fed actions to prevent the economy from overheating and sparking inflation in the future. However, this deliberate ‘headwind’ is a risk to the economy.”

Overall, North maintained that the economy has a “pretty good outlook” for 2006, with decent GDP growth of around 3.25%, robust employment, and low-but-rising inflation, interest rates, and default risks. “The economic forecast is positive as we enter into the new year; I am just trying to point out several potential risk factors for the future,” North concluded.

For more information on Euler Hermes ACI and its products and services, visit http://www.eulerhermes.com/usa.

A copy of Dan North’s presentation is available upon request. For an electronic copy, send an email to ehacipress@eulerhermes.com. For a hard copy, call 410-753-0652.

Euler Hermes is the worldwide leader in credit insurance and one of the leaders in bonding and guarantees. With 5,400 employees in 40 countries, Euler Hermes offers a complete range of services for the management of customer receivables and posted a consolidated turnover of 1.9 billion euros in 2004. The North American subsidiary (Euler Hermes ACI) is headquartered in Owings Mills, MD. For more information visit http://www.eulerhermes.com/usa.

Euler Hermes, a subsidiary of AGF and a member of Allianz, is listed on Euronext Paris. Standard & Poor’s rates the group and its principal credit insurance subsidiaries AA-.

These assessments are, as always, subject to the disclaimer provided below.

Cautionary Note Regarding Forward-Looking Statements:

Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words ‘may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, potential, or continue’ and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz Group's core business and core markets, (ii) performance of financial markets, including emerging markets, (iii) the frequency and sev erity of insured loss events, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults (vii) interest rate levels, (viii) currency exchange rates including the Euro-U.S. Dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and/or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures and (xiv) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences.

The matters discussed herein may also involve risks and uncertainties described from time to time in Allianz AG’s filings with the U.S. Securities and Exchange Commission. The Group assumes no obligation to update any forward-looking information contained herein.

Press Contact:

Rick Ostopowicz

Euler Hermes ACI Public Relations and Communications Specialist

Phone: (410) 753-0652

Email: rick.ostopowicz@eulerhermes.com

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