Emerging economies not long ago deemed at risk of crisis are seeing steady balance of payments improvements, while for oil exporters in the Gulf and elsewhere once-mighty cash surpluses have all but melted away.
The so-called taper tantrum of mid-2013 unleashed a wave of selling of assets from developing countries, whose big funding or current account deficits left them vulnerable to the withdrawal of cheap money resulting from a slowdown, or taper, in the rate of US money printing.
With oil prices at the time staying above US$100 per barrel, these tended to be fast-growing energy importers such as India and Turkey, which, along with Indonesia, Brazil and South Africa, were lumped together as the “Fragile Five” economies.
Photo: AFP
However, thanks to the halving of oil prices since the middle of last year and sharply weaker exchange rates, gaps are narrowing.
India’s deficit has shrunk to 0.9 percent of annual economic output this year, according to data compiled by JPMorgan Chase & Co, while Ukraine should post a surplus versus an 8 percent gap in 2012.
Others have improved less, with Turkey running a 5.2 percent deficit this year and Brazil, despite economic recession, seeing a bigger deficit than in 2012 at 3.4 percent.
“Lower oil prices are clearly helping to move trade balances so this is positive,” UBS strategist Manik Narain said.
“However none of the current account improvements have come through stronger exports,” he said.
“Governments have inflicted a lot of pain on domestic demand to get the current accounts under control,” Narain added.
However, if oil and currency adjustments are shrinking some deficits, commodity-reliant countries with fixed exchange rates are seeing the opposite.
Venezuela’s 2.9 percent surplus in 2012 for instance has swung into an 8.1 percent deficit.
There are also dramatic declines in the Middle East, where the six Gulf Cooperation Council (GCC) countries are to run a 3.8 percent surplus this year — down from 22 percent in 2012 and 13.2 percent last year.
Oil earnings this year for the bloc comprising Saudi Arabia, Kuwait, Qatar, Oman, Bahrain and United Arab Emirates would be US$275 billion less than last year, according to the IMF.
Moreover, all GCC currencies except Kuwait peg their currencies tightly to the US dollar. So with little relief on the exchange rate front, governments would need to slash budget spending to dampen import demand.
Jason Tuvey, who is a Middle East economist at Capital Economics, said that the headline surplus is down to Kuwait and Qatar, which mask a Saudi deficit of as much as 7 percent of GDP.
Smaller Oman and Bahrain have even bigger funding gaps.
While some economists acknowledge that governments would have to loosen currency pegs, Tuvey reckons spending cuts are more likely, saying that Saudi Arabia reacted to the 1980s oil price collapse by slashing capital spending more than 98 percent.
“A repeat of this would wipe out the budget deficit and push the current account position back into a sizeable surplus,” he added.
Other oil exporters that allowed their currencies to weaken have fared better over the past years, with Russia’s surplus at 5 percent of GDP compared with 3.5 percent in 2012.
Malaysia’s surplus has halved since 2012, but with the ringgit almost 30 percent weaker since the taper tantrum, there might be signs of a turnaround — imports are contracting and data on Friday showed exports growing twice as fast as expected, rising 16.7 percent from a year earlier, increasing for a fifth consecutive month.
EXTRATERRITORIAL REACH: China extended its legal jurisdiction to ban some dual-use goods of Chinese origin from being sold to the US, even by third countries Beijing has set out to extend its domestic laws across international borders with a ban on selling some goods to the US that applies to companies both inside and outside China. The new export control rules are China’s first attempt to replicate the extraterritorial reach of US and European sanctions by covering Chinese products or goods with Chinese parts in them. In an announcement this week, China declared it is banning the sale of dual-use items to the US military and also the export to the US of materials such as gallium and germanium. Companies and people overseas would be subject to
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) founder Morris Chang (張忠謀) yesterday said that Intel Corp would find itself in the same predicament as it did four years ago if its board does not come up with a core business strategy. Chang made the remarks in response to reporters’ questions about the ailing US chipmaker, once an archrival of TSMC, during a news conference in Taipei for the launch of the second volume of his autobiography. Intel unexpectedly announced the immediate retirement of former chief executive officer Pat Gelsinger last week, ending his nearly four-year tenure and ending his attempts to revive the
WORLD DOMINATION: TSMC’s lead over second-placed Samsung has grown as the latter faces increased Chinese competition and the end of clients’ product life cycles Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) retained the No. 1 title in the global pure-play wafer foundry business in the third quarter of this year, seeing its market share growing to 64.9 percent to leave South Korea’s Samsung Electronics Co, the No. 2 supplier, further behind, Taipei-based TrendForce Corp (集邦科技) said in a report. TSMC posted US$23.53 billion in sales in the July-September period, up 13.0 percent from a quarter earlier, which boosted its market share to 64.9 percent, up from 62.3 percent in the second quarter, the report issued on Monday last week showed. TSMC benefited from the debut of flagship
TENSE TIMES: Formosa Plastics sees uncertainty surrounding the incoming Trump administration in the US, geopolitical tensions and China’s faltering economy Formosa Plastics Group (台塑集團), Taiwan’s largest industrial conglomerate, yesterday posted overall revenue of NT$118.61 billion (US$3.66 billion) for last month, marking a 7.2 percent rise from October, but a 2.5 percent fall from one year earlier. The group has mixed views about its business outlook for the current quarter and beyond, as uncertainty builds over the US power transition and geopolitical tensions. Formosa Plastics Corp (台灣塑膠), a vertically integrated supplier of plastic resins and petrochemicals, reported a monthly uptick of 15.3 percent in its revenue to NT$18.15 billion, as Typhoon Kong-rey postponed partial shipments slated for October and last month, it said. The
RSS