If high fuel prices continue, inflation pressure will force several central banks in Asia to follow the US Federal Reserve in raising interest rates next year, while Taiwan is likely to maintain a neutral stance against a potentially slowing economy, DBS Bank Ltd (星展銀行) said on Friday.
Fuel prices have been rising steadily over the past few months, reflecting the persistent rise in global crude oil prices due to geopolitical risks involving Iran and the US in the Persian Gulf, and because there has been no major output pickup from major oil producers such as Russia and Saudi Arabia, DBS Bank said in a report.
“We see no clear path to resolution in this brewing Iran-US conflict; we think that the risk of matters worsening is far higher than some sort of mitigation in the near term,” DBS chief economist Taimur Baig said in the report.
“Against this background, we devote this weekly [report] to a scenario under which oil averages US$100 in 2019. This would constitute a 35 percent year-on-year price shock to oil importers, a dramatic development, given that it would build on top of a 30 percent year-on-year jump in 2018,” Baig said.
Baig was not alone in predicting that crude prices would return to triple-digit levels last seen in 2014.
Global information provider IHS Markit in August predicted oil prices could potentially reach US$100 per barrel by the end of this year or early next year, amid US sanctions on exports from Iran, OPEC’s No. 3 producer, and lower capacity in Libya and Venezuela due to geopolitical and economic concerns.
DBS’ economics team conducted a country-by-country analysis of the implications for growth, inflation, fiscal, current-account balances and foreign-exchange rates.
“The key stress points in Asia around much higher oil prices will be India and Indonesia, as has been the case this year,” Baig said in the report.
While sharply higher oil prices would pose macro challenges across the board, prompting measured interest rate hikes in Indonesia, South Korea, Thailand and the Philippines, Malaysia would be one unambiguous winner in a bullish commodity price environment, the report said.
As for Taiwan, a 10 percent increase in crude oil prices is expected to push inflation 0.2 percentage points higher, DBS said.
“Thanks to a high comparison base, we estimate that inflation will rise, but remain below the 2 percent mark in 2019 under the scenario of a spike in oil prices to US$100 per barrel,” Ma Tieying (馬鐵英), a Singapore-based economist at DBS Bank, said in the report.
The consumer price index (CPI) last month rose 1.72 percent from a year earlier, while core CPI — which excludes fruit, vegetables and energy items — increased 1.2 percent year-on-year, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said on Friday.
In the first nine months, CPI rose 1.66 percent and core CPI was up 1.40 percent from a year earlier, the DGBAS said.
Ma said a surge in oil prices would depress GDP growth and the business sector would face a profit squeeze due to higher upstream costs.
If corporate profits were to remain weak for several quarters, it would harm household consumption, she said.
“We reckon that GDP growth may fall below 2 percent in 2019 if oil prices stay at US$100 per barrel,” Ma said.
If GDP growth turns mild and the output gap remains negative next year, the central bank might refrain from monetary tightening, despite the risk of economic slowdown due to higher inflation, she said.
“Taiwan’s central bank will face a dilemma on monetary policy,” she added.
Stephen Garrett, a 27-year-old graduate student, always thought he would study in China, but first the country’s restrictive COVID-19 policies made it nearly impossible and now he has other concerns. The cost is one deterrent, but Garrett is more worried about restrictions on academic freedom and the personal risk of being stranded in China. He is not alone. Only about 700 American students are studying at Chinese universities, down from a peak of nearly 25,000 a decade ago, while there are nearly 300,000 Chinese students at US schools. Some young Americans are discouraged from investing their time in China by what they see
MAJOR DROP: CEO Tim Cook, who is visiting Hanoi, pledged the firm was committed to Vietnam after its smartphone shipments declined 9.6% annually in the first quarter Apple Inc yesterday said it would increase spending on suppliers in Vietnam, a key production hub, as CEO Tim Cook arrived in the country for a two-day visit. The iPhone maker announced the news in a statement on its Web site, but gave no details of how much it would spend or where the money would go. Cook is expected to meet programmers, content creators and students during his visit, online newspaper VnExpress reported. The visit comes as US President Joe Biden’s administration seeks to ramp up Vietnam’s role in the global tech supply chain to reduce the US’ dependence on China. Images on
New apartments in Taiwan’s major cities are getting smaller, while old apartments are increasingly occupied by older people, many of whom live alone, government data showed. The phenomenon has to do with sharpening unaffordable property prices and an aging population, property brokers said. Apartments with one bedroom that are two years old or older have gained a noticeable presence in the nation’s six special municipalities as well as Hsinchu county and city in the past five years, Evertrust Rehouse Co (永慶房產集團) found, citing data from the government’s real-price transaction platform. In Taipei, apartments with one bedroom accounted for 19 percent of deals last
US CONSCULTANT: The US Department of Commerce’s Ursula Burns is a rarely seen US government consultant to be put forward to sit on the board, nominated as an independent director Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract chipmaker, yesterday nominated 10 candidates for its new board of directors, including Ursula Burns from the US Department of Commerce. It is rare that TSMC has nominated a US government consultant to sit on its board. Burns was nominated as one of seven independent directors. She is vice chair of the department’s Advisory Council on Supply Chain Competitiveness. Burns is to stand for election at TSMC’s annual shareholders’ meeting on June 4 along with the rest of the candidates. TSMC chairman Mark Liu (劉德音) was not on the list after in December last