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May 16, 2016 | Weekly Commentary

The 2014 – 2016 collapse in domestic oil prices and related investment spending has proved to be far greater in scale and duration than what had occurred in prior cycles. History shows that sharp and large declines in energy prices tend to result in a substantial deceleration in nominal GDP growth, which also impacts both investment and consumption channels. With most of the negative effects of the oil-price collapse already absorbed, the cash flow benefit to households, transportation companies and a wide swath of industrial companies is yet to be realized.

If we assume no further substantial drops in domestic oil prices and capital spending plans, then the vast majority of the negative effects have probably already been absorbed. It’s the beneficial effects of lower oil prices that have yet to be fully realized. As a result, we believe nominal GDP growth should accelerate through the end of 2016. Source, in part: AB Global.

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