The impact of the lower oil prices

Feb 26, 2015 Editorial

What does the rapid decline in oil prices mean for emerging markets? Just like anywhere else, it depends on how much a particular country depends on oil for its livelihood. Net importers are expected to see an uptick in economic growth as lower crude prices stimulate consumer spending, reduce input and transport costs for industrial companies, and can allow governments more fiscal flexibility to pursue structural reforms. Net exporters, on the other hand, are in for some tough times.
All-in, when it comes to emerging market economies and the oil price collapse, there are more winners than losers. Oil-importing countries account for around 80 percent of market capitalization, and the majority of those are Asian nations. Indonesia, for example, is expected to reduce fuel subsidies from an estimated 2.4 percent of GDP in 2014 to 0.5 percent in 2015, according to Credit Suisse.
There are bright spots outside of Asia too. In Latin America, Chile is seeing the greatest upside. Even in Europe, the Middle East and Africa, there are some winners, such as Turkey and South Africa. “Lower oil prices will likely not only boost economic growth but also consumer sentiment in countries sensitive to fuel price inflation, and they will improve fiscal balances in countries with fuel subsidies,” says Dominik Garcia, emerging markets analyst at Credit Suisse’s Private Banking and Wealth Management division.
Then there are the losers. Countries that depend on oil exports—such as Mexico, Venezuela, Colombia, Russia and nations in the Gulf Cooperation Council—are dealing with serious shortfalls in revenue. Their fiscal situation is dire: most EM oil exporters require a Brent price of more than $100 per barrel to balance government spending. Only Qatar and Kuwait are able to do so with Brent at $80 a barrel, but that’s no saving grace with prices currently around $50 per barrel.
So what are investors to do? Favour oil-importing countries, and then favor well-positioned sectors within. Oil producing companies are a no-go at the moment, as are fuel-intensive industries such as materials. Better growth can be found in industries that benefit from low prices, such as transportation, refineries and manufacturing, Airlines, for example, should benefit from low jet fuel prices, which have dropped more than 30 percent since last June to the lowest levels in four years.
Chinese airlines are particularly well off because a low percentage of their fuel purchases are hedged, and thus locked in at higher prices. Consumer staples should also benefit since people are spending less of their paychecks on energy and therefore have more money left over for retail purchases.
Other attractive sectors include Chinese, Thai, Brazilian and Malaysian industrials, Indian IT and consumer discretionary stocks and Chinese utilities. Indeed, Asia is a heavy favorite on Credit Suisse’s list: “Asian economies in particular,” Garcia says, “will likely benefit as there are many net oil importers in the region.”
These facts were presented by Jens Erik Gould. In Guyana, the full effect of the lower oil prices has not been passed on to the consumer. In fact, there is the view many are actually enjoying bumper profits. The Guyana Government is reaping a windfall from the excise tax. The state owned Guyana Power and Light told the press that it expects to save some US$35 million in fuel imports.
Some of the savings are being offered to consumers of electricity and the owners of the electricity company say that the reduction in energy cost could be much less but the fact that the electricity company has been operating at a loss for a number of years, the management decided that it was going to recoup some of the money.
All eyes remain on the world prices for fuel. Fuel prices at the pumps surged upwards this past week although there was no indication of a rapid rise in the acquisition cost of fuel.
But while we celebrate the lower cost Trinidad is ruing every moment.

Latest News

The impact of the lower oil prices

Related

Similar Articles

The Glenn Lall Show|| March, 31st, 2025

Follow on Tik Tok @Glennlall

THE BLUNT OF THE DAY

Sports

Twin tons from Anderson, Imlach steer Eagles back on course

Race for quarterfinal spots commence today at MoE...

Marsh sets up Lucknow’s comfortable win...

‘One Guyana’ 3×3 Quest tips off today

Saints and GTI dominate as YBG Georgetown...

Carty misses ton, Hamilton (80) sets up tense...

Features/Columnists

The One-Man Republic

The U.S. “Joining” the Commonwealth: an unreasonable expectation

Polls – what they say, where I stand

Publisher’s Note

Weekend Cartoon

Bridge Watch

Demerara Harbour Bridge

> Berbice Bridge […]

The impact of the lower oil prices

Share this:

Related

Similar Articles

The Glenn Lall Show|| March, 31st, 2025

Follow on Tik Tok @Glennlall

THE BLUNT OF THE DAY

Sports

Features/Columnists

Publisher’s Note

Weekend Cartoon

Bridge Watch

Demerara Harbour Bridge

> Berbice Bridge […]