(EnergyAsia, February 5 2015, Thursday) — On balance, the negative economic impact of an oil price decline on producing countries exceeds the benefits accruing to consuming countries, said the World Bank.
In its flagship ‘Global Economic Prospects’ report, it said oil-exporting economies could expect to contract by 0.8 to 2.5 percentage points in the year following a 10% decline in the oil price.
In contrast, oil-importing economies could gain just 0.1 to 0.5 percentage points from the same rate of price decline.
The bank said it expects the current economic slowdown among oil exporters in the Middle East and North Africa together with Russia to compound their fiscal revenue losses.
“Fiscal break-even prices, which range from US$54 per barrel for Kuwait to US$184 for Libya, exceed current oil prices for most oil exporters. In some countries, the fiscal pressures can partly be mitigated by large sovereign wealth fund or reserve assets,” it said.
But “fragile” oil exporters such as Libya and Yemen may be forced to make substantial fiscal and external adjustment including currency depreciation or import cutbacks to deal with the threat of a sustained oil price decline. Russia, Venezuela and Nigeria will also have to make major adjustments in macroeconomic and financial policies.
Oil-importing countries like China, Brazil, India, Indonesia, South Africa and Turkey, on the other hand, will experience “substantial” improvements to their fiscal and current accounts.
The bank said China’s economy will be mildly boosted by 0.1% to 0.2% as oil accounts for only 18% of its energy mix dwarfed by coal’s 68% share. Transportation, petrochemicals, and agriculture account for the bulk of Chinese oil consumption, half of which is satisfied by domestic production.
Since regulated fuel costs are adjusted with global prices, the bank said it expects China’s CPI inflation to decline over several quarters. The overall effect would be small, however, given that the weight of energy and transportation in the consumption basket is less than one-fifth.
The fiscal impact is also expected to be limited since fuel subsidies are only 0.1 percent of GDP. Despite significant domestic oil production and the heavy use of coal, China remains the second-largest oil importer.
The bank predicts China’s current account surplus will widen by 0.4 to 0.7 percentage points of GDP if oil prices remain low throughout 2015.
Brazil, India, Indonesia, South Africa and Turkey will reap the benefits of lower inflation and reduced current account deficits.
The bank also found that some oil importers would be negatively affected by the economic slowdown in oil-exporting countries.
“Sustained low oil prices will weaken activity in exporting countries, with adverse spillovers to trading partners and recipient countries of remittances or official support,” it said.
“A sharp recession in Russia would dampen growth in Central Asia, while weakening external accounts in Venezuela or the Gulf Cooperation Council (GCC) countries may put at risk external financing support they provide to neighboring countries.”