Oil exporting countries suffer more than nations that export other types of commodities when prices for those commodities drop, according to new research from Moody’s Investors Service.
A new report from the rating agency examines the effect of commodity price declines on economies, and finds that the impact varies significantly depending on the type of commodity. The research looked at four commodities: oil, copper, iron ore and cotton. And, it found that oil exporters are hardest hit by price drops.
“For oil exporters, GDP falls on average by around 7% below the paths seen before the price falls,” said Ruosha Li, analyst in Moody’s macro financial analysis team. By comparison, cooper exporters saw a 4% decline, iron exporters dropped by 2.5%, and the effect was small for cotton exporters.
Moody’s says that the particularly large fall in GDP amongst oil exporters is due to the higher reliance on the commodity for these economies.
“Taking into account the different levels of exposure to commodities and differences in the typical price fall, the average GDP shortfall is smaller for oil than for copper and iron ore,” Li added, noting that oil exporters typically have large fiscal buffers that can dampen the economic impact of the price shock.