Cheaper oil won’t be much of a tonic for Asian economies. While painful for exporters, sliding prices should benefit consumers of crude. For most in the region, though, less expensive oil is mainly a sign that growth is stalling.
The big exceptions are India and Indonesia. Both governments supply gasoline and diesel to their consumers at fixed, affordable rates. For them, the 25 percent slide in the price of a barrel of Brent crude over the past four months translates into significant budgetary savings, which could be channelled into much-needed infrastructure investment.
Other major Asian economies, though, will look at falling oil prices less as a stimulant and more as a signal that global growth is faltering. For export-dependent Asia, lacklustre worldwide demand could end up being highly disinflationary.
That’s a big worry for the likes of China, Hong Kong and Singapore. These economies have all seen private credit rise rapidly since the 2008 crisis and need tolerably healthy inflation to help bring down the real value of debt. But China’s 1.6 percent inflation rate is now the lowest since February 2010, while the annual rate of increase in Singapore’s consumer prices has slipped below 1 percent. South Korea, which has historically had a problem of high household debt, can’t afford to allow its meagre 1.1 percent inflation rate to slide further.
To be sure, central banks in Asia could make use of the current “lowflation” to reduce borrowing costs and stoke domestic demand. South Korea recently cut interest rates by a quarter of a percentage point for the second time in three months. But China is refusing to go down that route, fearing that cheaper credit will worsen the problem of overinvestment in industries like real estate and steel.
China’s reluctance to stimulate its economy is adding to its neighbours’ woes. Uninspiring U.S. retail sales in September gave little indication that American households are using savings from cheaper gasoline to boost spending on other things. Meanwhile, Europe looks set to mimic Japan’s slide into long-term stagnation. The big drop in energy prices is a sign of global gloom, and not the elixir that will put vigour back into Asia.