Spike in crude prices may slow economic growth in Singapore

The other big issue about oil, apart from the risk of inflation, is its potential impact on growth.

According to HSBC, there is no need to panic. The spike in crude prices in itself is not going to knock out Asia overnight, however, it may slow economic growth.

The spike in oil is coming at an awkward time for Asia – though the timing of these things is clearly never ideal. Still, Asia is running full-on into a food price shock, which has already pushed up CPI readings all the way from Korea to Pakistan. Core prices are also on the rise amid soaring growth and tight labour. Now oil is being added to the mix, stirring up a lethal brew. 2008, or at least the first half of it, is on everyone’s mind. Crude, in fact, is especially tricky: though energy prices do not constitute an overwhelming share of local CPI baskets (food dominates), it can have a pernicious effect on inflation and price expectations. This is in part because oil prices have a powerful impact on food prices themselves, through fertilizer and transportation costs, and the substitution of petrol with bio-fuel.

Indonesia, Malaysia, and Vietnam are actually net exporters and the impact on their terms of trade from higher energy prices should be a net gain for these economies. Clearly, there is some complication here with Indonesia and Vietnam being net importers of refined products, even if they are net exporters of crude. Still, we go with this analysis since coal prices have moved up along with oil in recent times and both countries are big exporters of the stuff. Malaysia, however, is a clear beneficiary, at least in terms of trade terms, from higher oil prices. Other countries, by contrast, are net importers and higher oil prices should therefore impact growth negatively. But note that the relative impact on China and India is quite small, while Korea, Hong Kong, Singapore, Japan, Thailand and the Philippines suffer quite a bit.

It is not, however, that Asia can sit by and ignore the global effect of crude price spikes entirely.