The significance of yesterday’s drop in oil prices, despite a strong ADP report in the US, should not be underplayed. WTI crude has subsequently dropped below $50/barrel today. The global economic recovery is gaining traction, but growing demand is not being reflected in the price. The energy market is being turned on its head by renewables.
Economies of scale are quickly making renewable energy a viable alternative to fossil fuels. The falling cost of renewables and low energy prices can be very positive for economic growth. However, there will be winners and losers. Canada is struggling to transition away from old energy sources.
The latest BIS data paint a more positive picture in China, which has invested heavily in wind and solar. Outstanding debt of non-financial corporations has levelled off as a share of GDP, falling from 166.8% to 166.2% in Q3. It is too early to say whether macroprudential supervision can work in China. Nevertheless, the latest credit numbers from the BIS, together with the more positive FX reserves data for February, also suggest that some of the policy measures in China are gaining traction.
Summary
- Renewables turning energy market on its head
- Economies of scale will drive clean energy prices down further. Canada may not be ready for the transition
- In China, credit to non-financial corporates falls relative to GDP
