2.1 Global Economic Outlook in 2010
World economy is expected to grow by 3.8 - 4.2 percent in 2010, better than an expectation of 2.8 - 3.2 percent at the end of last year and improve significantly from a contraction of 0.8 percent in 2009. Asian currencies tend to appreciate against the US dollar. Commodity prices tend to rebound in line with global economic recovery and global market interest rate trends upward. Nevertheless, sluggish private demand in advanced economies poses risks to global economic recovery in the second half. Meanwhile, the global economic and financial fluctuation tends to escalate from that at the end of 2009.
- The global economy is forecasted to grow by 3.8 - 4.2 percent in 2010 a significant development compared with a contraction of 0.8 percent in 2009 but remains well below an average expansion rate of 4.6 percent in 2002-2007. The world trade volume is likely to grow by 5.8 percent, comparing to the 12.3 percent contraction in 2009 and the expected expansion rate of 2.5 percent at the end of last year. This moderate pace of global economic recovery of 3.8-4.2 percent will be supported by strong economic expansion in Asia, in particular, China and India. Meanwhile industrialized economy is likely to show sluggish pace of recovery of around 2.1 percent, led by 2.7 percent in the US and an average growth rate of 1.0-1.5 percent in Eurozone, Japan and United Kingdom. In addition the better economic conditions in these major economies will contribute to economic expansion of export-dependent economies, such as NIEs and ASEAN5 that are likely to grow by 4.8 and 4.7 percent respectively.
- Supporting factors for global economic recovery in 2010 are including: (i) inventory restocking cycle in major economies, after the strong depletion in 2009, which will induce the expansion of the manufacturing production and global trade volume in the first half of 2010; (ii) the momentum from coordinated stimulation measures; (iii) accommodative monetary policy in advanced economies, though the emerging and developing Asia as well as other overheated economies, such as China, India, and Australia, tend to shift their policy direction to curb inflation; (iv) the recovery of private demand that are generated by a continued economic recovery during the latter half of 2009, especially in Asia.
- Asian currencies tend to appreciate against the US dollar. Commodity prices rebound in line with global economic recovery and global market interest rate trends upward. Asian currencies are likely to appreciate against the US dollar, providing: (i) the faster pace of economic recovery and the adoption of monetary policy tightening; (ii) the large fiscal and current account deficit, and the massive quantitative easing in the US. Nevertheless, compare to other major currencies, US dollar tends to appreciate against the Euro and Japanese Yen due to: (i) the difference in cycle of economic recovery; (ii) the faster monetary policy shift in the US than in the Euro and Japan; and (iii) financial concern stoked by European sovereign risks. In addition, the global demand recovery will cause the rises in world market price of oil and primary commodity. World market interest rate trends upward due to the tendency of monetary policy tightening in various countries, financial demand to finance fiscal deficit, and the increasing of private financial demand in spite of global economic recovery.
Nevertheless, sluggish private demand in advanced economies poses risk to global economic recovery in the second half of 2010. Meanwhile, global economic and financial fluctuation tends to escalate from that of at the end of 2009. Global economic recovery, however, remains fragile and possesses the risks of sharp deceleration in the second half of 2010. The world economic and financial fluctuation tends to escalate from that of at the end of 2009. The downside risks to global economic recovery that could jeopardize the pace of world economic recovery to lower than 3.8 percent are including (i) the fragile private consumption recovery in industrialized countries due to high unemployment rate and financial deleveraging; (ii) the contribution from inventory liquidation cycle in major countries is likely to fade out in the latter half of 2010, and the end of inventory cycle could come earlier than expectation given fragile private demand recovery in industrialized countries; (iii) the momentum of major stimulus measures tend to fade out; (iv) fiscal policy withdrawal and monetary policy tightening in major countries to suppress inflationary pressures and concerns over fiscal instability; (v) the problem of financial instability in the countries with poor economic fundamental global economic recovery that could jeopardize the pace of world economic recovery to lower than 3.8 percent are including (i) the fragile private consumption recovery in industrialized countries due to high unemployment rate and financial deleveraging; (ii) the contribution from inventory liquidation cycle in major countries is likely to fade out in the latter half of 2010, and the end of inventory cycle could come earlier than expectation given fragile private demand recovery in industrialized countries; (iii) the momentum of major stimulus measures tend to fade out; (iv) fiscal policy withdrawal and monetary policy tightening in major countries to suppress inflationary pressures and concerns over fiscal instability; (v) the problem of financial instability in the countries with poor economic fundamental
2.2 Oil price trend in 2010
(1) The average Dubai crude oil price in 2010 is expected to be in the range of 75-85 US dollars per Barrel, higher than the average price of 61.60 US dollars per barrel in 2009. By January 2010, the average Dubai crude oil price was at 76.56 US dollars per barrel, and on the 11th February 2010 the Dubai crude oil price stood at 72.12 US dollars per barrel. However in the remaining of 2010, oil price is expected to escalate due to the global economic recovery, particularly Asia countries such as China and India, ASEAN countries, and the emerging countries.
(2) Oil price has tendency to fluctuate in short term due to the complications arising from climatic uncertainty and the concern over the strengthening of world economic recovery. These include the crude oil price of WTI which has the highest price at 83.18 US dollars on January 6th, 2010, yet plunged rapidly to 71.19 US dollars on February 5th, 2010 and recently on February 11th, accelerated to 75.28 US dollars. However, in long term, petrol price is estimated to rise and the average crude oil price in 2010 is likely to be higher than that of last year. The Energy Information Administration (EIA) forecasted that the average crude oil price in 2010 will be 79.78 US dollars per barrel and most analysts estimated crude oil price in the range of 75-95 US dollars per barrel. Nevertheless, NESDB expected that the average crude oil price of WTI will be in the range of 75-85 US dollars per barrel, higher than the average price of 61.82 US dollars per barrel in 2009.
(3) Supporting factors for oil price in 2010 to be higher than in 2009 are as follows:
- The increase in oil demand in tandem with global economic recovery, particularly in Asian countries. According to EIA’s report on Oil Market Situation in February 2010, global oil demand in 2010 has adjusted to increase. The supporting factor is mainly from the economic recovery in Asia, particularly the expansion of Chinese economy. In December 2009, it is clear that oil demand in China has increased by 12 percent from the same period of last year. In addition, Chinese’s stimulus package also continuously supports the oil demand. Thus, EIA forecasted that the amount of global oil demand in 2010 in comparison with 2009 will increase to 1.2 million barrel per day, accelerated after a prolonged decline in 2008 and 2009. The increase in global oil demand in 2010 is largely attributable to demand in non- OECD countries which is forecasted to increase by 3.06 million barrel per day, whilst the demand in OECD countries is increased by 0.13 million barrel per day.
- The US dollar tends to depreciate in 2010 due to sluggish economic activity in relative to other trading partners. Thus, US dollar depreciation tends to encourage investors to shift their investment portfolios from equity market to commodity market, particularly oil market which is an alternative investment destination as hedge against currency depreciation and inflation.