BAKU, Azerbaijan, May 19
By Leman Zeynalova – Trend:
The sharp fall in global oil prices will have significant economic effects across Emerging Markets (EMs), with some countries pushed into crisis and others receiving a much-needed cut to their import bill, Trend reports citing Fitch Solutions.
“Given the scale of the fall in oil demand, we doubt that OPEC+ supply cuts that took effect on May 1 2020 will be enough to spur a meaningful recovery in oil prices. We expect that Brent crude will end the year at about $40/bbl, with prices averaging $33/bbl over the course of 2020. With both prices and export volumes lower than in 2019, energy exporters will see a sharp fall in their income,” the company said in its report.
Fitch Solutions estimates that this shift in oil prices and volumes will reduce major oil-exporting EMs’ aggregate net oil exports by about 51 percent, cutting their incomes by $500 billion.
Saudi Arabia and Russia will, unsurprisingly, face the biggest losses, according to the company.
“We expect that both countries will receive about $100 billion less in oil exports this year than they did in 2019. When measured as a share of GDP, however, lower oil revenues will probably weigh much more heavily on smaller economies such as Angola and Iraq. These countries will each see revenue fall by over 20 percent of national output in 2020, marking a significant hit to their economies,” reads the report.
The hit to aggregate income will, proportionally, be much smaller in countries with more diversified economies like Brazil or Malaysia, according to Fitch Solutions.
“The fall in exports will cause oil exporters’ current account positions to deteriorate. The decline in consumers’ incomes will also, of course, reduce import demand, but in most cases this will not be enough to offset the decline in exports. In countries – like Colombia or Nigeria – that were already running large current account external deficits, shortfalls will likely widen,” reads the report.
This will add to pressure on oil exporters’ currencies, many of which are pegged to the US dollar.
But while the Nigerian naira, Angolan kwanza, and Brazilian real will probably continue to weaken, we are confident that governments in the Gulf have the resources necessary to protect their pegs. Oil Importers To Benefit From Lower Prices While low energy prices will be painful for oil exporters, many other EMs will benefit from cheaper energy costs, which will reduce their import bills. Low oil prices are, in a sense, a transfer of wealth from producers to consumers,” reads the report.
If oil demand remains at 2019 levels, Fitch Solutions estimates that the EMs would save a total of $330 billion off their net import bills this year.
“The actual fall in the value of oil imports will probably be bigger – we estimate about $360 billion – because of a fall in the volume of oil consumed. This windfall is not as large as the $500 billion fall in exports that oil exporters are likely to see, suggesting that, net, EMs will lose out,” reads the report.
Within a given economy, the distribution of this windfall will also depend on domestic energy market, according to Fitch Solutions.
“In countries where fuel prices are market-determined (like Poland) the benefit of lower costs will flow directly to consumers, reducing prices and boosting disposable income. In more regulated fuel markets (like Nigeria) lower prices will allow the authorities to phase out subsidies. They could even boost government revenue if the government maintains prices at pre-crash levels and pockets the difference,” reads the report.
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