Oil slump likely to benefit Chinese economy

Oil slump likely to benefit Chinese economy

Dragged by a supply glut and US dollar appreciation, oil price will likely fluctuate between $40 and $60 a barrel this year and benefit Chinese economy with an increasing trade surplus, said Xie Yaxuan, chief researcher for China Merchants Securities.

Oil price plummeted 50 per cent in the past year, as Organization of Petroleum Exporting Countries (OPEC) refused to cut production and US output reached a three-decade high according to Bloomberg.

“We estimate that if oil prices stay at current low level through this year, Chinese CPI could be 0.3 to 0.4 percentage points lower and GDP growth 0.2 to 0.3 percentage points higher,” said UBS chief China economist Wang Tao in a note in January.

UBS projects the country’s GDP to grow at 6.8 per cent in 2015, with the oil slump likely offsetting downward uncertainty.

Ma Jun, chief economist of the central bank’s research bureau, estimates that China’s real GDP growth will edge up 0.12 percentage points if the average oil price drops by 10 per cent year on year.

The country imported 308.4 million tons of crude oil in 2014 worth $228.3 billion, reported Xinhua news quoting official data, which account for about 58 per cent of its oil consumption.

“The oil slump is also expected to have a stabilizing effect on renminbi exchange rate,” said Xie Yaxuan, adding that currency values have diverged as the US dollar became stronger.

Cut in spending

The Mexican government announced on Friday that it will cut 2015 spending by 0.7 per cent of GDP in response to lowered oil prices which are likely to persist for years.

Mexico’s state-owned oil and electricity companies will also cut their own outlays, and all the reductions will have a marginal effect on this year’s growth, according to Bloomberg.

Russia, another world’s energy exporter, decided to decrease spending by at least 5 per cent annually in real terms for three years and seek a more balanced budget by 2017, reported the agency.

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