2. Oil Price and Oil Price Trend in 2011
- Oil price in Q4/2010
World crude oil price increased, driven by high demand during the winter season. In the fourth quarter of 2010, an average world crude oil price (Dubai, Brent, Oman, and WTI) stood at 85.24 US dollars per barrel, increased by 12.7 percent, compared to 75.63 US dollars per barrel in the same period of last year. In 2010, the average crude oil price (Dubai, Brent, Oman, and WTI) stood at 78.90 US dollars per barrel, increased by 27.5 percent, compared to 61.90 US dollars per barrel in 2009.
- Oil price trend in 2011
An average Dubai crude oil price in 2011 was expected to be in a range of 85-95 US dollars per barrel, higher than 77.91 US dollars per barrel in 2010. The average Dubai and WTI crude oil price in January 2011 equaled to 92.16 and 89.71 US dollars per barrel and currently (on 18th February 2011) stood at 97.80 and 84.99 US dollars per barrel, respectively. Several institutions adjusted their WTI crude oil forecast. The energy information Administration (EIA) of USA expected that the average WTI oil price would increase to 93 US dollars per barrel in 2011. BMI (Business Monitor International) of UK forecasted that the price will move up to 81.93 US dollars per barrel. Whereas Morgan Stanley and Goldman Sachs expected that in 2011, the price will be over 100 and 105 US dollars per barrel respectively. Key factors affecting the oil price include (i) global economic recovery, (ii) higher demand, particularly from China. In addition, EIA expected that world oil consumption in 2011 will increase to 1.5 million barrels per day, (iii) uncertainty in level of oil production in petroleum exporting countries, and (iv) political unrest in Egypt and Middle East.
3. World Economic Performance in Q4/2010 and Outlook in 2011
The world economy showed a sign of improvement in the last quarter of 2010. The US economic growth reflected positive contributions from higher exports, reduced trade deficit and prominent personal consumption expenditure. The Eurozone economy and China picked up slightly, nevertheless, budget deficit and accumulated public debt has remained the problems facing many economies in the Eurozone. China has become the world’s second-largest economy with the GDP of 5.879 trillion US dollars, surpassing Japan which has the GDP of 5.474 trillion US dollars. Unemployment remained severe in the US, Eurozone and Japan. Inflation was a staggering problem especially in Asia due to rising food, commodity and energy prices, and it led many countries to implement a tight monetary policy to slow down the rate of inflation. The summary of the economic performance in the main economies are illustrated as follows:
US economy expanded by 2.8 percent on a year-on-year basis, down from the 3.2 percent growth in the preceding quarter. On a seasonally adjusted quarter-on-quarter basis, the economy grew by 3.2 percent, as compared to 2.6 percent in the previous quarter. The acceleration in real GDP primarily reflected a significant reduction in trade deficit due to an increase in exports and a sharp downturn in imports. The PMI in this quarter improved to 57.9 and in January the PMI reached its peak of 60.8 due to an increase in new orders and higher export production. Personal consumption expenditure grew by 4.4 percent, the highest expansion since the fourth quarter of 2006. Residential fixed investment increased. Consumer Price Index (CPI) slightly increased by 0.3 percent in the fourth quarter and it rose by 0.5 percent in December. The unemployment rate remained at 9.6 percent, the same rate as the third quarter. At the end of the fourth quarter, 14.5 million persons were unemployed. However, the unemployment rate fell to 9.0 percent in January, and the number of unemployed decreased to 13.9 million persons. The US economy was estimated to expand by 2.9 percent in 2010, up from a contraction of 2.6 (%YoY) last year.
Eurozone Economy expanded by 2.0 percent, up from 1.9 percent on a year-on-year basis. On a seasonally adjusted quarter-on-quarter basis, the Eurozone economy grew at the same rate as the preceding quarter at 0.3 percent. However, Portugal and the United Kingdom contracted as a result of tight fiscal policy. Greece has also been contracted since 2008, while the Netherlands, Spain and Estonia expanded, and the key contributions to their positive growth including: (i) domestic demand growth, particularly in investments and inventories, and (ii) the decelerating expansion in trade (trade surplus of 0.7 billion euro in 2010, in comparison to 16.6 billion euro in 2009). The Eurozone economy expanded by 1.7 percent in 2010 with highest expansion in Sweden, Slovakia and Germany at 4.8, 4.4 and 3.6 percent respectively. Rising food and energy prices led to increased inflation rate by 2.0 percent in the fourth quarter. Inflation rate reached 2.2 percent in December 2010 and this upward tendency increased the pressure on the ECB to hike the interest rates in the near future. Estonia experienced the highest level of inflation among the Eurozone economy, with the average inflation rate of 5.0 percent in 2010. The euro slightly appreciated against the baht, the yen and the US dollar in the fourth quarter, compared with the previous quarter. Nevertheless, the euro began to show signs of depreciation since November 2010, which coincided with the improvement in the US economic condition. Unemployment rate and interest rate remain unchanged at 10.0 and 1.0 percent respectively.
Japanese Economy expanded by 2.2 percent on a year-on-year basis, down from the 4.9 percent growth in the third quarter. On a seasonally adjusted quarter-on-quarter basis, the Japanese economy contracted by 0.3 percent, decreased from the 0.8 percent growth in the previous quarter. The contraction was due to lower exports and the expiry of government subsidies on consumer goods. The Japanese economy grew a respectable 3.9 percent in 2010, up from a contraction of 6.3 percent in 2009. In the fourth quarter of 2010, private consumption contracted by 0.7 percent, compared with the previous quarter, and likewise, retail sales contracted by 0.4 percent (%YoY), reflecting tightened consumer spending. The manufacturing PMI dropped from 50.8 in the third quarter to 47.6 in the fourth quarter. The PMI has been below the benchmark level of 50 since September. Exports expanded by 10 percent, down from 17.8 percent in the preceding quarter due to a slowdown in importing economies and the strongest yen against the US dollar in 15 years. Imports, on the other hand, grew by 11.2 percent, decreased from 14.5 percent in the third quarter. In the fourth quarter, the price started to increase as a result of rising commodity prices. However, the extremely low level of Consumer Price Index (CPI) at 0.1 percent in the final quarter becomes a growing concern for the risk of deflation in Japan. The Bank of Japan has kept the overnight policy rate unchanged at a range of 0.0 to 0.1 percent, until the inflation rate surpasses a 1.0 percent level. Unemployment rate in the last quarter of 2010 remains relatively high at around 5.0 percent, down slightly from 5.1 percent in the preceding quarter.
Chinese Economy experienced a higher-than-expected growth of 9.8 percent on a year-onyear basis, increased from a 9.6 percent growth in the preceding quarter. The Chinese Economy expanded by 10.3 percent in 2010 and the main contribution to growth in the final quarter was from manufacturing industry, reflected by the increased manufacturing PMI of 54.6, up from 52.2 in the third quarter. The PMI stood at 52.9 in January 2011, the 23nd consecutive month above the 50 benchmark, indicating that Chinese manufacturing sector continued to exhibit positive growth. Industrial production expanded by 13.3 percent in the final quarter of 2010, a diminutive decrease from 13.5 percent in the third quarter. As a result, industrial production expanded by 15.7 percent in 2010, compared to 11.0 percent in 2009. While Chinese Economy continued to expand, inflation pressure has become a major concern. In November 2010, inflation rate drastically reached 5.1 percent, the highest level in the last 28 months. However, inflation began to cool down to 4.6 percent in December. This has led the Chinese Government to implement tight monetary policy including interest rate hikes and increase in bank’s required reserve ratios (RRRs) to curb inflation and economic bubbles. On
February 8th 2011, People’s Bank of China increased the one-year lending rate by 0.25 percent from 5.81 percent to 6.06 percent, the third time in four months. Inflation rate reached 3.3 percent in 2010, exceeding its 3.0 percent target. Inflation rate is anticipated to continue to rise in 2011 due to increased food price.
Indian Economy experienced a volatile industrial production in the final quarter of 2010, as can be seen from the 11.3 percent growth in October and 2.7 percent growth in November. However, the HSBC PMI stood at 57.4, up from 56.5 in the third quarter, indicating that the Indian economy will continue to expand approximately by 8.8 percent. Inflation rate (WPI) reduced to 8.2 percent in the fourth quarter. In response to an increase in energy, food, and commodity prices, the Reserve Bank of India implemented tight monetary policy to reduce inflation pressure. On January 25th 2011, the Reserve Bank of India increased the repurchase rate by 0.25 percent from 6.25 to 6.5 percent, the seventh rate hike in one year. Further interest rate hikes are anticipated, until the inflation rate is in the range of 4.0 to 4.5 percent, while maintaining cash reserve ratio (CRR) at 6.0 percent.
Newly Industrialized Economies (NIEs) on the whole, expanded in the fourth quarter of 2010. Singapore and South Korea grew at a rate of 12.5 percent and 4.8 percent respectively, up from 10.5 and 4.4 percent in the preceding quarter. Key contributing factors to the economic growth were the expansion of industrial sector and higher exports. On a contrary, Taiwan grew at a slower rate of 6.5 percent, down from a 9.8 percent growth in the previous quarter. Key contributing factor to this was the contraction in private consumption and investment. Inflation in NIEs mostly increased as a result of rising food and energy prices. This has led many NIEs to implement tight monetary measures to control and reduce inflation pressure. For example, on December 30th 2010, the Bank of Taiwan increased its discount rate by 0.125 percent to 1.625 percent per year. Likewise, the Bank of South Korea increased the policy rate by 0.25 percent, from 2.50 percent to 2.75 percent per year.
Australian Economy in the fourth quarter are expected to continual expand as the rise of terms of trade and the improving current account deficit could compensate for the fall in domestic demand, due to the appreciation of AUD, specially in tourism, housing market and car sales (car sales during July and October expanded by -24.2 -0.3 3.6 and -4.9 respectively). Moreover, the appreciation of AUD had little effect on domestic production side because Australian economy has a sizable domestic market and that the majorities of exports are raw materials and commodities which remain essential to the world. On the other hand, consumer confidence declined slightly. The financial and capital markets in 2010 improved when compared to 2008 and 2009 but still continued to contract. While inflation in the fourth quarter expanded from the preceding quarter by 0.4 percent to stand at 2.7 percent in 2010, unemployment remained constant and stood at 5.0 percent. Inflation is anticipated to remain stable at this level until mid-2011. Over all, Australian Economy in 2010 is expected to expand by 2.7-3.0 percent depending on: (i) public spending; (ii) exports and; (iii) risks relating to increasing lending cost as household debt burden remains high. The Reserve Bank of Australia is likely to increase the policy interest rate in order to maintain inflation level below 3.0 percent
ASEAN Economy: Vietnam expanded by 7.3 percent on a year-on-year basis, up from 7.2 percent in the third quarter. A higher-than-expected annual average of 6.8 percent was more than the anticipated 6.5 percent growth, as a result of consumption stimulus measures, government expenditure, and exchange rate manipulation that encouraged exports. Industrial and services sectors accounted for 93 percent of GDP growth. Meanwhile, Indonesia grew by 6.9 percent (%YoY), a rise from a 5.8 percent growth in the preceding quarter. However, the seasonal adjusted figure revealed a 1.4 percent contraction, in comparison to the 3.5 percent expansion in the third quarter. An annual GDP growth in 2010 was 6.1 percent due to a rising food and energy prices. Both Vietnam and Indonesia are facing the continual inflationary pressure that went above their inflation targets, and this may led to further Interest rate hikes in the future. Nevertheless, inflation in Malaysia, Philippines, and Thailand was still at an acceptable level. Currencies in the region have been appreciated against US dollar. However, Vietnamese dong has been stabilized and undervalued due to its pegged system. On the 10th of February 2011, the Vietnamese government devalued its currency by 8.5 percent as a result of considerable current account deficit
Global Economic Outlook in 2011
The world economy showed a continual and stronger-than-expected recovery in 2010, particularly in the fourth quarter which the expansion was led by the revival of the US, Japan, and China. This is consistent with the IMF which announced an upward adjustment of the global GDP growth in 2010 from 4.8 percent (as of October 2010) to 5.0 percent (as of January 2011). The satisfactory growth of the world economy will be the key driver to the stabilized world economic expansion in 2011.
The US economy is expected to grow by 3.0 percent in 2011, an improvement from the 2.9 percent growth in 2010. Nonetheless, unemployment rate will remain high. Key factor contributing to the US recovery is the implementation of the Quantitative Easing 2 (QE2) measures, which accounted for 650,000 million US dollars. This would cause the depreciation of US dollar and lead to lower current account deficit and improve the world balance on trade and real sectors. However, the QE2 could generate a discrepancy in the world financial system, causing the appreciation of Asian currencies due to the outflows of short-term capital from Europe and the US to emerging Asia. Bubbles in property and stock markets have also become concerning issues which would pressure Asian countries to pursue tight monetary policy in 2011.
The Eurozone economy remains uncertain due to the public debt and financial crises in Ireland, Greece, and Spain. The Eurozone economy is expected to grow by 1.4 percent and unemployment rate is expected to be stable at 10.1 percent. Inflation risk would lead to the interest rate adjustment, and it is possible that the European Central Bank would follow suit on the FED’s QE measures.
The Japanese Economy is expected to grow by 1.3 percent in 2011, a sharp deceleration from a 3.9 percent growth in 2010. The key factors contributing to the economic slowdown in 2011 is the huge reduction in exports partly due to a strong yen. As can be seen in 2010, export expanded by 20 to 25 percent (at constant price) and it is expected to grow by 5.0 to 10.0 percent in 2011. Domestic demand remains weak due to lower public and private consumption as well as reduced private investment. Public investment tends to shrink while unemployment continues to be high.
The Chinese economy is forecasted to grow by 9.0 percent in 2011. Domestic demand, especially in terms of private consumption is one of the main positive contributors to growth. Exports, investment and consumption continue to expand at a high level. Nevertheless, the inflationary pressure, the appreciation of local currencies, and the tension on the Korean peninsula are the main risk factors. Moreover, China is likely to invoke more restrictive monetary measures this year.
The ASEAN economy, overall, is expected to slow down. The governments are obliged to constantly control their inflation rates, and monitor the exchange rate in order to maintain the trade balance.