12 Feb 2015
How much will China benefit from the falls in oil prices? - NAB
Gerard Burg, Senior Economist at National Australia Bank, comments on the positive boost to China as a result of the sustained lower oil prices, and further revises the country’s GDP forecasts to 7.1% in 2015 and 6.9% in 2016.
Key Quotes
“Since early 2014, global oil prices have plummeted, falling by 55% year-on-year to around US$48 a barrel in mid-January (for benchmark Brent crude).”
“As the world’s second largest oil consumer (behind the United States) and largest net importer, China stands to benefit from sustained lower oil prices.”
“China’s economic model is changing – with less momentum provided by energy intensive heavy industry and investment and more from low intensity services. This means additional units of economic output are less sensitive to oil price movements than in the past.”
“In addition, China’s energy mix is dominated by coal, rather than oil, with the large majority of coal being domestically produced. Domestic coal prices fell in 2014 – albeit not nearly as significantly as oil prices.”
“We have revised up our forecasts for China in both 2015 and 2016, although only modestly, with a 0.1% upward revision in both years – to 7.1% in 2015 and 6.9% in 2016.”
“We expect that Chinese authorities will take advantage of the oil price stimulus to lower public investment and continue the process of cleaning up shadow banking (and with it credit growth more generally).”
“We continue to expect a slowing track for China’s growth – particularly given the political capital invested in announcing a ‘new normal’ of slower growth.”
Key Quotes
“Since early 2014, global oil prices have plummeted, falling by 55% year-on-year to around US$48 a barrel in mid-January (for benchmark Brent crude).”
“As the world’s second largest oil consumer (behind the United States) and largest net importer, China stands to benefit from sustained lower oil prices.”
“China’s economic model is changing – with less momentum provided by energy intensive heavy industry and investment and more from low intensity services. This means additional units of economic output are less sensitive to oil price movements than in the past.”
“In addition, China’s energy mix is dominated by coal, rather than oil, with the large majority of coal being domestically produced. Domestic coal prices fell in 2014 – albeit not nearly as significantly as oil prices.”
“We have revised up our forecasts for China in both 2015 and 2016, although only modestly, with a 0.1% upward revision in both years – to 7.1% in 2015 and 6.9% in 2016.”
“We expect that Chinese authorities will take advantage of the oil price stimulus to lower public investment and continue the process of cleaning up shadow banking (and with it credit growth more generally).”
“We continue to expect a slowing track for China’s growth – particularly given the political capital invested in announcing a ‘new normal’ of slower growth.”