Recent oil price increases are not a big threat to emerging Asian economies because of their strong fundamentals, analysts have said.
Capital Economics, which is a macroeconomic research consultancy, has stated that though Asian economies are relatively oil-dependent, the inflationary impact will be small even if prices remain at current levels. It added that India and Thailand look most vulnerable within Asia, while China is among the least exposed.
At the same time the fact that the U.S. dollar price of Brent crude has risen by about 20 percent since early October could threaten Asia in several ways. Daniel Martin, Asia Economist and Mark Williams, Chief Asia Economist, of Capital Economics have reported that the price rise could push up inflation, making it harder for central banks to cut interest rates at a time when the outlook for global demand is still uncertain. In addition high prices also eat into real incomes and widen current account deficits for net importers.
Except for Malaysia and Vietnam, every country in emerging Asia is a net oil importer. Korea, Taiwan and Thailand are the biggest net importers relative to the size of their economies. India stands out as vulnerable on this measure too, given that, unlike most of the rest of the region, it already has a large current account deficit. Sustained high oil prices would probably weigh on the Indian rupee.
Capital economics has stressed that the broadest measure of an economy’s sensitivity to oil prices is given by how much oil it requires to produce a given level of output. Vietnam and Thailand use double as much oil to produce a given unit of output as the region’s high-income economies. China looks relatively well-placed on this measure, since its energy demands are largely met by coal but it is still more oil intensive than most Western economies.
On a negative point Capital economics has pointed that tensions between the West and Iran could escalate, pushing oil prices up further even as the global economy falters.
In general though, the threat from oil prices at current levels is manageable. Asia has shown in recent years that high prices are not a barrier to the region’s continued rapid economic growth.