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Fitch: Most Major Asian Economies to Benefit from Lower Oil
November 20, 2014 / 2:42 AM / 3 years ago

Fitch: Most Major Asian Economies to Benefit from Lower Oil

(The following statement was released by the rating agency) HONG KONG/SINGAPORE, November 19 (Fitch) The 25% drop in the price of oil since July is likely to lift economic growth prospects, improve terms of trade, and have a potentially positive credit impact for a number of Asia-Pacific sovereigns if the lower prices are sustained below USD90/bbl through 2015, in line with our latest forecast, says Fitch Ratings. Most major Asian economies - including China, Japan, Korea and Thailand - would see an effective overall income boost from sustained lower oil prices. In addition, countries with large oil import needs facing external adjustment pressures such as Indonesia and India are among the best positioned to see a positive impact on sovereign credit profiles, although the broader policy response will matter too. All but one of the Fitch-rated APAC sovereigns are net oil importers. Net oil import bills range significantly, from greater than 10% of GDP for Thailand to less than 2% for Bangladesh and Vietnam. Korea, Japan and China have net import bills of 6%, 3% and just over 2% of GDP, respectively. For consumers, there would be a positive consumption effect from falling retail energy prices. Disinflation as a result of lower oil prices could also contribute to GDP growth less directly in some countries, by facilitating a more accommodative monetary policy than would otherwise be followed. Notably, several key Asian economies, including Japan, have been increasingly relying on liquefied natural gas (LNG) as part of their energy mix, and Asian LNG prices are linked to Brent crude. A combined positive impact on fiscal accounts, economic growth and terms of trade, would be particularly beneficial for the sovereign credits of countries which are both net oil importers and facing external adjustment pressures, including Indonesia and India. Lower oil prices will help to ease the trade-offs faced by these economies as they aim to bolster growth while reducing external account deficits. Beyond the macroeconomic growth effects, the fiscal impact could also be significant for several south and south-east Asian sovereigns. Both the Indian and Indonesian governments have already taken advantage of the price decline. In India, diesel prices were deregulated on 18 October. The direct impact on our headline fiscal forecasts is expected to be limited, while this will make the fiscal accounts more robust against future oil shocks, since both diesel and petrol prices are now determined by the market. In Indonesia, the new administration under President Joko Widodo raised the administered price of fuel by over 30% on 18 November. Roughly 15% of total government spending (2.4% of GDP) is allocated to fuel subsidies, according to the state budget. In addition to direct effects on the state budget, the price hike provides a clear, positive signal of the new government's intentions to swiftly implement its reform agenda. However, the extent to which sovereigns are able to realise the potential fiscal benefits will be determined at least partly by how policy makers respond - whether they use budget windfalls to increase spending or reduce deficits. Fitch has lowered its forecast for the price of Brent Crude to average USD87/bbl through 2015 and USD90/bbl for 2016 as part of our latest forecasting round, down from our September forecasts of USD100/bbl and USD95/bbl, respectively. Contacts: Andrew Colquhoun Senior Director Sovereigns +852 2263 9938 Fitch (Hong Kong) Limited 2801 Tower Two, Lippo Centre 89 Queensway Hong Kong Thomas Rookmaaker Director Sovereigns +852 2263 9891 Justin Patrie Senior Director Fitch Wire +65 6796 7232 Mark Brown Senior Director Fitch Wire +44 20 3530 1588 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: APAC Sovereigns Chart of the Month - October 2014 here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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