In recent times, the oil prices in the world market have fallen rapidly. Which of the following can be its implications on global economy?

  1. Increase in global Inflation
  2. Increase in GDP of oil importing countries
  3. Decrease in global investments by Sovereign Wealth Fund of Gulf countries

Select the correct option from the codes given below:

Answer: [B] Only 2 & 3

First statement is incorrect because lower oil prices dampen inflation both directly when the price of oil-related products falls and indirectly when production costs for other goods fall. So, lower oil prices lead to lower global inflation. In an assessment made by the World Bank (2015), global inflation would fall by 0.4–0.9 percentage points over 2015 and further in 2016.
Second statement is correct as the fall in oil prices would result in savings in oil importing countries while less revenue accrued to oil exporting countries.
Third statement is correct
A SWF is state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments. Sovereign funds are as a result of budget and trade surpluses, and even from revenue generated from the exports of natural resources. And with the decrease in oil prices globally the volume of investment from the Middle East funds would decline significantly as Gulf countries cut back spending.

This question is a part of GKToday's Integrated IAS General Studies Module