Plunging oil prices fuel emerging Asia growth
WASHINGTON, DC. KAZINFORM Powerful forces have combined to drive Asian equity markets to outperform their emerging markets peers, with plummeting energy costs providing the strongest tailwind. Ebbing oil prices could supplement a variety of existing macro-economic catalysts, helping Asian emerging market equities to continue to drive overall emerging market performance.
Oil prices dropped 18 percent in November-the largest monthly loss in almost six years-with WTI crude bottoming out at $63.72, extending a sustained $30 drop over the last six months. Brent crude followed the same trend, falling 3.3 percent (to $70.15 a barrel) on the London-based ICE Futures Europe Exchange, its lowest close since May 2010, Bloomberg reports. With their reliance on oil imports and consumer goods exports, Asian nations are beneficiaries of falling energy prices, and signs of a continuing oil glut-some analysts forecast that crude could drop as low as $60-is cause for optimism for four nations in particular: China, India, South Korea and Taiwan. Exporters reap the oil windfall Lower energy prices mimic a global tax cut in both developed markets-see the 2.2 percent growth rate of U.S. consumer spending in the third quarter-and developing ones alike. The resultant shift of resources to consumers, the IMF estimates that every 10 percent drop in the price of oil results in a 0.2 percent boost to global GDP. In China, which in 2013 relied on oil imports to meet 57.4 percent of its crude consumption, every $1 drop in the price of oil saves the nation $2.1 billion annually-particularly good news considering the price of its manufactured exports has remained unchanged despite the lower energy overhead. In October, Alaskan oil was shipped for the first time ever to South Korea, where the 10 percent decline in crude oil prices translates into GDP growth of 45 basis points. For a nation where oil comprises 30 percent of total imports, the result is projected economic growth of 3.5 percent in 2014 and 3.6 percent in 2015. Similar market forces have been on display in Taiwan, where the first 10 months of 2014 saw tech-driven exports rise 3.2 percent, resulting in a trade surplus of more than $22 billion. In India, where oil represents one-third of all imports, cheaper energy is helping to drive down inflation to 6.5 percent-a 3.5 percent drop from early 2013-hinting at a brighter economic future highlighted by a lower budget deficit and increased domestic investment. Read more