Baku, Azerbaijan, June 22
By Leman Zeynalova – Trend:
Among the emerging markets, the main beneficiaries of the recent drop in oil prices are South Korea, India, Turkey, and South Africa, while the biggest losers are the Gulf States, Russia and Nigeria, says an analysis done by the UK-based consulting company Capital Economics.
That being said, while this helps to explain market moves over the past month, there are good reasons to think that in each case the impact on GDP growth from the latest drop in oil will be relatively small, said the analysis obtained by Trend.
“We doubt the most recent drop in oil prices will have a major bearing on the outlook for growth in emerging markets,” said the company. “For a start, it needs to be viewed in the context of the rally in oil prices over the first half of this year. Brent crude averaged $46 per barrel last year – not very different from its current level of $44 per barrel.”
More fundamentally, the company analysts believe it’s important to note that movements in oil prices have no direct impact on real GDP (which, after all, abstracts from movements in prices).
“Instead, any impact on real GDP growth will come via the indirect effects caused by shifts in income. In other words, what matters is how the latest drop in oil transfers income from producers to consumers, and how this then effects spending decisions,” said Capital Economics.
First, in the case of oil consumers, the benefits from the drop in oil will come through a boost to real incomes, according to the analysts.
However, these benefits tend to be diffuse and, given that the latest drop in oil only reverses an earlier rise, there is unlikely to be a demonstrable impact on spending patterns, said Capital Economics.
“Second, there are several reasons to think that in the case of oil producers, the impact on incomes and spending will be limited too. For a start, in the Gulf, most of the hit to revenues falls on the government, who can smooth spending decisions,” the analysts believe.
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