Thursday, December 31, 2015

Year behind and year ahead summarized in two words; What 2016 holds for Asia; Oil rout to continue in 2016

1 Year behind and year ahead summarized in two words (San Francisco Chronicle) Asked to sum up 2015 in two words, and to do the same for their expectations for the coming year, people around the world have this to say:

Thailand: 2015: "A mess." 2016: "Fresh start." — Korawut Lam, college student. China: 2015: "Smog, corruption." 2016: "Lower prices, safe Internet." — Chen Chen, hairdresser. Brazil: 2015: "Economic crisis." 2016: "Olympic crisis." — Meire Gomes, jewelry seller. New York: 2015: "Lousy economy." 2016: "More money." — Ronnie Boyd, who sells knickknacks and scarves on Times Square

Malaysia: 2015: "Tough life." 2016: "Better economy." — Tony Wong, businessman. Philippines: 2015: "Move on." 2016: "New house." — Jojo Moro, Typhoon Haiyan survivor. France: 2015: "Danger everywhere." 2016: "Solidarity." — Sylvie Marchal, communication expert in Paris

2 What 2016 holds for Asia (Karishma Vaswani on BBC) 2015 was the year we clocked the following: No country can grow at double digit growth forever (China). You can't just dig stuff out of the ground and sell it for ludicrously high prices forever (end of the commodities super-cycle). Cheap US money doesn't last forever (Fed pushes rates up)

Here are my calls for 2016: The great slowdown of China continues. Official growth numbers will come in at 6.5%, but real growth will much likely be far lower than that. The corruption clampdown will continue to squeeze regional budgets - and that's going to push spending and consumption down further.

The elephant emerges, but slowly and not without a few stumbles. India will be the standout performer in 2016, with growth forecast at more than 7.5%. As a net oil importer, India will benefit from low oil prices. But it's not all good news. Economic reforms in India are necessary for its current growth to turn into a structural one. The attempts to pass the GST (goods and services tax) constitutional amendment bill are still stuck in parliament over differences with the opposition Congress party.

Japan - more of the same. Japanese companies should clock slow but steady growth in 2016. A weaker Japanese yen will make exports more competitive, and as the US Fed continues to raise interest rates, the yen should become weaker. Expect more monetary stimulus in 2016 as the Bank of Japan aims to boost the country's flagging economy ahead of an upper house election next year. Japan's population is shrinking and greying, which means the labour force is too.

South East Asia - not as bad as we thought, not as good as we hoped. Some South East Asian economies which have spent the last decade benefiting from China's demand for their commodities should have used the last decade of growth to put in place economic reforms. But political interests outweighed economic ones, and that's now starting to pinch. Malaysia and Indonesia are also at risk of further currency weakness, and capital outflows as the US Fed continues to hike interest rates.

Australia - the unlucky country? Australia’s new Prime Minister Malcolm Turnbull has to navigate Australia out of the curse of the resource economy. Growth has slowed and mines are slashing jobs. Expect more mines to close. Mr Turnbull has talked about the need to transition into a creative, innovative economy and has set up a 1bn Australian dollar ($723.2m) fund to boost growth in that area.

3 Oil rout to continue in 2016 (Straits Times) Oil prices remained in a downbeat mood during their final Asian-hours trading session of 2015 after record US crude inventories reinforced concerns about a global supply glut that has pulled down prices by a third over the past year.

Crude inventories in the US rose 2.6 million barrels last week, the US Energy Information Administration said. Analysts had expected a draw of 2.5 million barrels. Crude prices held losses, with US West Texas Intermediate (WTI) crude futures trading around $36.70 per barrel on Thursday (Dec 31) and Brent around $36.60 per barrel. Both benchmarks are down by around a third over 2015.

The immediate outlook for oil prices remains bleak, with some analysts like Goldman Sachs saying prices as low as US$20 per barrel might be necessary to push enough production out of business and allow a rebalancing of the market. US bank Morgan Stanley said in its outlook for next year that "headwinds (are) growing for 2016 oil." The bank cites ongoing increases in available global supplies, despite some cuts by US shale drillers in particular, as well as a slowdown in demand as the main reasons.

Analysts estimate global crude production exceeds demand by anywhere between half a million and 2 million barrels every day. This means that even the most aggressive estimates of expected US production cuts of 500,000 bpd for 2016 would be unlikely to fully rebalance the market.

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