Global Economics Falling oil prices : winners and losers ::HSBC

 Falling oil prices have less of an impact on the economy
than rising prices
 Our Oil Vulnerability Index shows that emerging markets are
the biggest gainers and the biggest losers from oil price
moves in either direction …
 …but the net impact on emerging market growth should be
positive
The Brent oil price has retreated sharply, falling by 12.5% since the end of March. This
might be explained by increasing supply coming into the market, Iraq and Libya raising
output together with increasing shale oil production in countries such as the US that has
offset the decline in Saudi production over 2012. But the rapid drop in oil prices this
month is more abrupt than can be fully explained just by supply improvements as it
coincides with drops in some commodities such as gold.
Clearly, markets have been rattled by the run of weak data coming not only from the US and
Eurozone, but also emerging markets, especially China, which after a weaker-than-expected
Q1 GDP print, seems to be still slowing into the second quarter of this year (the flash HSBC
manufacturing PMI for April eased to 50.5 from 51.6 in March). And while BoJ has turned
on the liquidity tap, the Fed seems to be having more of an internal debate on when and how
to exit from QE, with some members calling for a halt to additional asset purchases by the
end of this year. Long speculative positions, which had touched new highs in late 2012, are
being unwound as shown in chart 1 and 2 (For more details on calculations of speculative
positions, please see Oil and Money published on 22 February 2012).
In this piece, we look at the impact of this oil price drop on growth and inflation across
countries. Our Oil Vulnerability Index shows that some emerging market countries are
most vulnerable to this drop in prices while other developing countries benefit the most,
with the impact on the developed world being more moderate. We also try to quantify the
impact of oil price increases using the Oxford Economics forecasting model and find that
most of the impact of a sustained drop in oil prices is seen in 2014, with EM countries
such as China and India benefiting strongly. This should outweigh the drag from slower
growth in oil exporting EM countries, implying a net positive pickup in global growth

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