Commodities slide will lift most Asian nations

Commodities slide will lift most Asian nations

SINGAPORE -The recent tumble in commodity prices will be a boon for most Asian economies, supporting countries such as India, Thailand and China with higher growth, lower inflation and better economic fundamentals.

Malaysia, Indonesia and Australia, however, will emerge as the biggest losers from this, economists say.

While gold has captured global attention since suffering its worst fall in 30 years, other commodities have also been on the downtrend in recent weeks.

The Dow Jones-UBS Commodity Index, a basket of commodity futures followed by US$74 billion of investor money, has fallen 14.5 per cent since its most recent peak in September last year. Brent crude oil, a component of the index, sank below US$100 a barrel last week for the first time since July.

Although the drop in prices is largely due to weak economic data coming out of the US and China, cheaper commodity-driven import prices will help Asia buffer against weaker foreign demand, said Nomura chief Asia economist Rob Subbaraman.

Most countries in Asia are net importers of metals and energy. Falling commodity prices will, therefore, lead to an increase in the real income of net importers such as Korea and Thailand, which have the highest trade deficits in metals and energy, said Capital Economics Asia economist Daniel Martin.

Japan, too, will benefit, especially since the fall of the yen has pushed up the cost of its oil imports, said HSBC co-head of Asian economics research Frederic Neumann.

Conversely, Australia, Malaysia and Indonesia - the only three net exporters of metals and energy - will be the biggest losers.

Lower commodity prices will hit government revenue in Malaysia and Indonesia, as oil and gas account for about one-third of Malaysia's revenue, and resources for a quarter of Indonesia's, said Mr Martin.

But the overall impact will be offset by a reduction in the cost of fuel subsidies.

Indonesia spent more on subsidies for fuel and electricity than it received in revenues from the resources sector in 2011, while Malaysia's subsidy bill is about 20 per cent of government revenue.

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