BAKU, Azerbaijan, March 12
By Leman Zeynalova – Trend:
With the obvious exception of Russia, countries in Emerging Europe are net beneficiaries from lower oil prices, Trend reports with reference to the UK-based Capital Economics research and consulting company.
“They are all net importers of energy and, based on our forecast for oil prices, we estimate that the aggregate net energy import bill will, on average, be about $2 billion a month lower than it was in 2019. The gains are likely to be varied across the region – the fall in net imports could be worth over 1 percent of GDP in Turkey and Hungary but much less in Poland, Romania and the Czech Republic,” the company said in its report.
The price of oil has fallen from around $65 per barrel at the start of the year to $34 per barrel this week. This has prompted the company to revise its oil price forecasts significantly lower (from $75 per barrel at year-end to $48 per barrel).
Capital Economics believes that the main benefit from lower oil prices will accrue to households via a reduction in fuel prices.
“This, in turn, will act as drag on inflation and boost households’ purchasing power. By our estimates, the recent drop in oil prices and our forecast for a gradual recovery in prices this year could knock around 0.5 percent- points off headline inflation across the region, with Poland and Turkey the biggest winners,” said the company.
Perhaps the main economic benefit will arise by giving central banks more room to ease policy. Concerns about above-target inflation will become much less pressing in Central Europe and the company expects central banks in Poland and the Czech Republic to respond with interest rate cuts over the coming weeks.
“Hungary’s central bank won’t have to tighten policy – as had been expected only a few weeks ago. What’s more, lower net energy import bills should help to narrow large current account deficits in Romania and Ukraine, and prevent (or delay) Turkey’s current account from shifting to a deficit this year. This, coming alongside the global backdrop of looser policy, should allow central banks in Ukraine and Turkey to continue cutting interest rates, at least for the next few months.”
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