Over the past month, Emerging Markets has covered the rollercoaster in oil price expectations and its likely impact on emerging market growth and monetary policies. Earlier in the year, lower oil prices in local currency terms generated expectations that Asian central banks would have marginally more room to cut interest rates to boost growth this year. However, as oil prices remain at stubbornly elevated levels, on the back of Iran-Israel tensions, fears are rising about its impact on the global business cycle, asset allocation strategies and Asia's macroeconomic outlook, more generally, since it is a net commodity importer.
On the latter issue, consensus opinion, as we have noted, remains sanguine: Asian GDP has been expanding, in both real and dollar terms in recent years, at a faster rate than EM oil consumption, thereby reducing oil intensity. What's more, stronger Asian currencies this year should offset the impact of higher Brent prices in dollar terms. To add fuel to this pitch, here ares some slides that highlight how non-Japan Asian (MJA) markets and economies, in general, can probably take much more oil price pain and the region's weak spots, courtesy of Credit Suisse:
Further reading:
Asia vs. EEMEA: FX/oil prices edition - EM