(EnergyAsia, March 6 2015, Friday) — Asia’s collective GDP could be boosted by between 0.25% and 0.5% for 2015 if crude oil prices remain at current levels, said global business services provider TMF Group.
For China, the US$50 per barrel plunge in oil price is generating an immediate stimulus worth US$112 billion or the equivalent of 1.1% of the country’s GDP.
Discounted oil is helping China offset the negative impact of the global economic outlook on its export-led sectors. TMF also noted that the benefit of weak oil in helping subdue inflation and increase consumer purchasing power as the Chinese economy heads for a prolonged period of economic slowdown.
“It has provided the country a great opportunity to shift towards a consumption-driven development model,” said author Paolo Tavolato. At the start of the year, Beijing gave its 40 million civil servants a salary increment of at least 31% in an effort to stimulate domestic consumption.
Japan, the world’s third largest net oil importer after the US and China, is positioned to save more than US$80 billion a year. According to TMF, Japan’s total energy import expense last year of more than US$200 billion claimed 5% of its GDP.
“Although the yen has depreciated almost 14% in the past six months, crude oil still cost 30% less for Japan and helped the country save US$37 billion (equivalent to 0.8% of its GDP),” it said.
Thanks largely to the sharp fall in oil and gas prices, Japan reported a 60% decrease in its trade deficit in January.
The beleaguered domestic economy has also been given breathing room, enabling the country’s GDP to top US$4.2 trillion for the first time in eight years, said TMF. Japanese industries are enjoying better profits while households have more disposable income as lower energy prices are starting to offset the effects of the depreciated yen over the last two years.
India expects to reduce its annual import bill by US$650 million for every US$1 slide in the crude oil price, said TMF. Energy purchases accounted for 34.5% of the country’s total import bill last year.
India’s current account deficit and fiscal deficit could be pared down by 0.5% and 0.1% of GDP respectively for every US$10 per barrel fall in the fuel price.
Thanks largely to plunging energy prices, TMF said India’s 2015 current account could be in surplus, albeit by a miniscule 0.3%, for the first time in 10 years.
“The substantial improvement in the country’s books will give room for the Reserve Bank of India to implement a more assertive and development-oriented monetary policy,” said TMF.
Taking advantage of the oil price collapse, the government of Prime Minister Narendra Modi was able to partly reduce the country’s fiscally-draining energy subsidies of over 600 billion rupees. His predecessor was unable to push through economic reforms partly because most voters opposed any move to slash the subsidies that otherwise would have been invested in improving India’s inadequate and ageing infrastructure.
TMF noted that the Modi government was able to drop the diesel subsidy that had cost India 0.3% of its GDP. Energy accounts for a quarter of India’s total 2.6-trillion-rupee expense on subsidies. (US$1=61 rupees).
Mr Modi was elected to power last May to revive India’s slowing economy that analysts said was due partly to the failed energy policies of the previous government.