The effects of low oil price on Asian economies

The effects of low oil price on Asian economies

The effects of low oil price on Asian economies

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The effects of low oil price on Asian economies
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The effects of low oil price on Asian economies

BANGKOK – The price of oil has declined drastically from 15 a barrel in June 2014 to below US$50 recently. The decline can be attributed to weak global demand coupled with OPEC’s decision to maintain output levels at 30 million barrels per day.

Net oil importers, such as China and Japan, should benefit from lower oil prices as a result of cheaper input and fuel costs, and increased consumption as consumers have more disposable income. On the other hand, net oil exporters, including countries in the Middle East and Russia, should be negatively affected as their economies are heavily dependent on oil revenues.
Thailand is an oil-importing nation with net oil imports amounting to US$32 billion in 2014, according to data from Trade Map, a service of the UNCTAD/WTO-affiliated International Trade Centre. The low oil price environment is slated to have an overall positive impact on the Thai economy. Industries such as wholesale/retail, food and beverages, and electronics should benefit from increased consumption while the logistics sector will gain from lower fuel prices.

On the other hand, some sectors will be adversely affected. For example, the oil exploration and production (E&P) sector will suffer from lower prices and revenues, the hotel industry will experience lower revenues from fewer Russian tourists, and the automobile industry will see decreased demand from the Middle East.

As well, the agricultural commodities sector should also feel a squeeze as para rubber and sugar prices are expected to fall — the former, the result of lower synthetic rubber prices, while the latter is due to increased production in Brazil amid falling ethanol prices.

In Asia, the country likely to benefit the most from lower oil prices is Japan. Japan is a major importer of oil and oil-related products with imports valued at $210 billion in 2014 —roughly equivalent to 4% of the country’s GDP. Japan’s manufacturing sector is set to experience a significant upside from lower raw material and electricity costs. This includes companies in the steel, tyres, glass and and paper sectors. For example, electricity costs account for 5-20% of sales in the steel sector so significant gains in profitability are expected.

However, the outlook is not all rosy for Japan as some sectors will be negatively affected by lower oil prices. A quarter of Japan’s automobile exports are destined for oil and commodity-exporting nations — including the United Arab Emirates, Russia and Australia — which are now experiencing a slowdown in demand. The impact will be somewhat tempered by stronger demand from the United States which accounts…

If we take a look at Asean nations, we see that Malaysia and Indonesia stand to lose from the low oil price environment. Malaysia’s economy relies heavily on energy and fuel, with oil imports valued at 6 billion in 2014. Crude oil and LNG exports account for about 8% of the country’s GDP. The fall in oil prices is expected to have a negative impact on Malaysia’s current account balance and currency.

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