Sign In | Create Account

|| आ नो भद्राः क्रतवो यन्तु विश्वतः || Let nobel thoughts come to us from everywhere, from all the world || 1.89.1 Rigveda ||
Section : Economics

Price plunge a windfall for most -- but not all -- of Asia
According to estimates by the United Nations Economic and Social Commission for Asia and the Pacific, a further $10 per barrel fall in the price of oil in 2015 would translate to a 0.5 percentage point increase in the region's GDP growth.

By KENJI KAWASE, Nikkei deputy editor

Effects of cheaper oil

Price plunge a windfall for most -- but not all -- of Asia

KENJI KAWASE, Nikkei deputy editor

BANGKOK -- The sharp plunge in oil prices is generally being seen as good news for Asian economies, with the notable exception of Malaysia. As four out of the world's five top oil importers are in this region, a drastic fall in fuel costs is likely to benefit many consumers and businesses. However, lower oil prices are also a symptom of economic slowdown, and weaker global demand could hamper growth prospects for oil importers, too.

     "Emerging Asia will benefit the most from the oil bill cut," AXA Investment Managers said in a research note published Jan. 15. AXA research head Eric Chaney and senior emerging economist Manolis Davradakis said in the note that oil prices dipping below $50 a barrel is "a game changer" and singled out India and Turkey, as oil imports account for about two-thirds of their trade deficits.

Additional benefits

Narrowing deficits may also act as an extra cushion to the U.S. Federal Reserve's interest rate hike, expected sometime in 2015. The Indian rupee and other currencies of the "fragile five" emerging economies, a term coined by Morgan Stanley in the summer of 2013, were heavily sold when the Fed initially hinted on tapering quantitative monetary easing. But "now that current account deficits in the emerging world are narrowing due to subdued oil prices, currency movements may be less pronounced once the Fed starts tightening."

     On Jan. 15, the Reserve Bank of India was able to cut its policy rate for the first time in 20 months due to lessened inflationary pressure. "Inflation outcomes have fallen significantly below the 8% targeted by January 2015," RBI Gov. Raghuram Rajan said in the statement announcing the surprise rate cut. "On current policy settings, inflation is likely to be below 6% by January 2016."

     Barclays also sees emerging Asian economies expanding 6.3% in 2015, up from 6.0% last year, on falling oil prices and an improving outlook for the U.S. David Fernandez, the regional head of fixed income, currencies and commodities research, said that the Asia-Pacific region, as the largest consumer market and biggest net importer of oil, is likely to benefit the most, through channels such as rising consumer purchasing power, subdued inflationary pressure, opportunities to undertake fiscal consolidation and more. Even though a further slowdown is expected in Chinese growth, structural reforms led by newly elected reform-minded leaders and "strong domestic demand are likely to support growth in India and Indonesia," he added

     According to estimates by the United Nations Economic and Social Commission for Asia and the Pacific, a further $10 per barrel fall in the price of oil in 2015 would translate to a 0.5 percentage point increase in the region's GDP growth. The largest beneficiaries would be South Korea, the Philippines, Singapore and Thailand. "By and large [falling oil prices] are benefits to the future prospects," Shamshad Akhtar, under-secretary-general of the U.N. and ESCAP executive secretary, said at a Jan. 13 press conference in Bangkok.

     Cheaper oil prices seem to be spilling over to real estate markets as well. "The key winners in the region's real estate market are the retail and logistics sectors," said Nicolas Wilson, senior manager of Asia-Pacific capital markets of real estate service company JLL. Both markets "will benefit from improving household balance sheets, as energy costs absorb less consumer income."

The flip side

It is not all sunshine for everyone, though. Nomura recently cut its real GDP growth forecast for Malaysia from 5.0% to 4.7% in 2015 and from 4.5% to 4.3% in 2016. According to research led by Southeast Asia economist Euben Paracuelles, Malaysia is "an unambiguous loser in the region." As the only major oil and commodities exporter in Asia, the fall in prices has "in our view triggered a plunge in private-sector sentiment."

     And even for oil consumers, lower oil prices may not necessarily be a driver of economic growth, according to HSBC. The bank is cutting its 2015 growth forecasts for most countries, including emerging Asian economies. "Part of the decline in oil prices is strongly associated with weakening of parts of the global economy," said Stephen King, its chief global economist, at a Jan. 15 press conference in Hong Kong. "We think actually that declines in oil prices in one sense are catching up with prior disinflationary and deflationary trends coming through. ... We have a tremendous deflationary and deleveraging story for many parts of the world."

Zach Coleman, deputy editor of the Nikkei Asian Review in Hong Kong, and Nikkei staff writer Yukako Ono in Bangkok contributed to this story.

Comment Form


 Email Address


 Write Your Comment Here


0 Comment

Suggested articles...

Daniel Yergin: Crude's discount days are numbered
By Nikkei Asian ReviewInterviewed by Nikkei staff writer Soichi Inai

Read More
No meat in pre-poll promises
By K.G.Suresh

Read More
India's Economic EMERGENCY?-2
By Vivek Kaul

Read More
At This Juncture, India Cannot Afford Fiscal Consolidation
By Srinivas Thiruvadanthai

Read More
By Vikas Saraswat

Read More
India’s Manufacturing Activity Improves in October
By Anant Vijay Kala,WSJ

Read More
Growth no longer means jobs: Inflexible labour laws, rapid technological change have caused employment generation to stall
By R Jagannathan

Read More
Why NDA 2 Is Not UPA 3
By Surjit S Bhalla

Read More
Poorest nations, not just richest, must act to end extreme poverty - campaigners
By Kieran Guilbert

Read More
The Ignored B.R Shenoy Report of 1966
By W.A.Wijewardena

Read More