On 15 September 2015, the main topic of the talks how, Archevani, on air on Rustavi,2 was the price of grapes. Speaking about this, a member of the Parliamentary Majority, Giga Bukia, declared that the low price for grapes is caused by the world economic crisis. Mr Bukia named the decreased oil prices as an example to support his statement. He said that two years ago, the price of one barrel of oil was USD 120 whilst this year the price dropped to USD 45 which constitutes a decrease of 220%. On 5 October 2015 on the talkshow, 20/30,

another member of the Parliamentary Majority, Irakli Sesiashvili, also emphasised the "economic crisis in the entire world."

FactCheck

verified whether or not there is a world economic crisis.

The notion of a world economic crisis means that all or most of the countries with advanced economies experience serious economic problems. As of today, the last economic crisis was registered in 2009 when the economies or the economic growth rates of 90 different countries experienced a drop. The worst indicators were registered in Ukraine (-15%), the Baltic states (-14to-15 %), Russia (-7.8%), Japan (-5.5%), Turkey (-4.8%), Georgia (-3.7%), the USA (-2.8%) and the EU (-4.3%). In total, countries with advanced economies had their GDP decreased by 3.4%. The economic decline was accompanied by rising unemployment. The unemployment rate in developed countries rose by 2.4 points and reached 8.2%.

According to the estimates of the World Bank, in 2015 the world economy will increase by 2.8%, the economies of developed countries will increase by 2% and the economies of developing countries will increase by 4.4%. According to the same estimates, the economies of the developing countries of the Eastern European and Central Asian region (which includes Georgia) will increase by 1.8%. The highest economic increase (6.7%) is expected in the countries of East Asia.

At the present moment, there is no economic crisis in the world. Moreover, according to the prognosis of the World Bank and the International Monetary Fund, 2015 will be better than 2014 (see Table 1 and Table 2).

Table 1: 

Economic Growth Rate in Different Groups of Countries and High Income Countries

 World Bank 2014 2015
 Groups of Countries
    World 2.6 2.8
    Developing Countries 4.6 4.4
    High Income Countries 1.8 2
    Eurozone 0.9 1.5
 Countries
    Saudi Arabia 4.3 4.6
    Poland 3.4 3.6
    Chile 1.9 2.9
    USA 2.4 2.7
    UK 2.8 2.6
    Czech Republic 2 2.4
    Slovakia 2.4 2.4
    Japan 0 1.1
    Croatia -0.4 0.5
    Russia 0.6 -2.7
Source: World Bank

Table 2: 

Economic Growth Rate in Different Groups of Countries and Countries with Large Economies

 International Monetary Fund 2014 2015
 Groups of Countries
     World 3.4 3.3
      Developing Countries 4.6 4.2
      Eurozone 0.8 1.5
      Developed Countries 1.8 2.1
 Countries
      USA 2.4 2.5
      Germany 1.6 1.6
      France 0.2 1.2
      Italy -0.4 0.7
      UK 2.9 2.4
      Spain 1.4 3.1
      Japan -0.1 0.8
      China 7.4 6.8
      India 7.3 7.5
      Russia 0.6 -3.4
      Brazil 0.1 -1.5
Source: International Monetary Fund

According to the International Monetary Fund, the volume of international trade in goods and services will be increased by 4.1% whilst the growth rate in 2014 was 3.2%.

Giga Bukia also named the decreased oil prices as an argument for the existence of a world economic crisis. In summer 2014, the price of one barrel of crude oil was USD 95. It now costs USD 45 which means that the price dropped by 53%. Of note is that the MP emphasises a 220% decline in prices which is theoretically impossible because the price can be decreased by 100%and no more; that is, it reachesa zero point. Besides the mathematical inaccuracy, the statement’s context is also wrong. The world oil price did not decrease because of the world economic crisis as occurred in 2009. The principal economic cause behind the falling oil prices is the significant increase in US oil production. The USA became the largest oil producer country in the world. At the same time, other large oil producing countries did not drop their production volume. The falling oil prices (in USD) were also abetted by the global appreciation of USD.

Apart from supply and demand, oil prices are also affected by expectations. The rise of geopolitical risks such as the Russia-Ukraine war, the Islamic State, the Greek crisis and the falling prices of shares on the Chinese stock exchange worsen the expectations. In the last couple of months, the agreement to revoke sanctions against Iran was also added to these geopolitical factors. Additionally, the trend of production of energy efficient vehicles and technological development play an important role as well.

Naturally, the falling oil prices were negatively reflected upon oil exporting countries and their foreign economic activities (trade, investments). Additionally, oil is a factor of production and cheap oil also results in cutting prices of industrial goods and their supply. Therefore, it is wrong to assert that falling oil prices have an entirely negative impact upon the world economy. This process has both winners and losers.

Conclusion

A world economic crisis implies that the majority of the world’s countries (especially countries with large economies) face serious economic problems – economic decline, decrease in trade and investments and rising unemployment. According to the estimates of the World Bank and the International Monetary Fund, 2015 will be better than 2014 for most countries. The world economy will increase by approximately 3%. Some countries (Russia, Ukraine, Greece) currently have serious economic problems but that does not mean that there is a world economic crisis. Each year, we can find countries with serious economic difficulties.

Oil price has fallen by 53% and not by 220%. It is impossible to have a 220% drop in a price. The decrease in oil prices today has some real reasons and contrary to 2009, they have not dropped because of a decreased demand for oil which was in turn caused by the decreased volume of world production.

Therefore, FactCheck concludes that Giga Bukia’s statement is FALSE.

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