Economic Focus Government is resilient enough to weather lower crude oil price, says MIDF Research

by **Cals** Mon 01 Dec 2014, 23:00

Economic Focus
Government is resilient enough to weather lower crude oil price, says MIDF Research

KUALA LUMPUR (Dec 1): Concerns over the significant retracement in crude oil price may be exaggerated as the Government’s revenue exposure to falling oil price is naturally hedged by its subsidy payments, according toMIDF Research.
In an economic feature report Dec 1, MIDF Research said Federal Government expenditure had grown tremendously in the last 10 years. Much of the revenue to finance the expenditure has been petroleum-related.
It said OPEC’s decision to cede no ground to rival producers underscored the price war in the crude market and the challenge to U.S. shale drillers.
“Keeping output target unchanged even after the steepest slump in oil prices, OPEC has abandoned its role as a swing producer as the world enters a new era for oil prices.
“The decline is threatening to have a global impact. With the current glut in oil production, experts anticipate oil prices to continue to hover around US$60 per barrel,” it said.
However, MIDF Research said that not all was doom for the global economy, with the caveat that respective governments taking necessary actions.
“As of today, countries such as Russia, Venezuela, Mexico and Iraq already have spending cuts in their pipeline for the year ahead, helping them to trim budget deficits.
“Reports also suggest that not all economies will suffer as they would still be able to operate at $70 per barrel,” it said.
MIDF Research said the much lower oil prices could help other oil importing Emerging Markets countries with their fiscal as well as current account position at a time when they are bracing for funds outflows as Fed tightens next year.
“On the other hand, with the increasing amount of liquidity as result of ECB’s and PBOC’s stimulus program, we foresee that oil prices will bounce back to the $70-$80 per barrel level by next year,” it said.