Mixed blessings

Cheap oil pays mixed dividends for Asia

For Asia's consumers, the dividend from cheap oil got lost in the mail. When crude prices started their slide a few years ago, net importers such as China, Japan, India and Korea were expected to benefit. Yet while corporate and government finances have improved, consumers have largely missed out.

To understand the missing dividend, look at the factors that contributed to pushing down prices. It's true that supply of the black stuff increased as the United States pumped out more shale and traditional producers increased production. But weak global demand was also a factor. The latter knocked $34 off the price of a barrel of oil, according to calculations by Goldman Sachs, while increased supply reduced prices by $26 per barrel.

The broader economic slowdown hammered Chinese, Korean and Taiwanese exports, undermining business confidence in those countries. Many companies focused on paying their interest bills and reducing debt. Though leverage improved, investment suffered.

Meanwhile, some governments pocketed the cheap oil windfall. Countries like India and Indonesia took advantage of lower prices to cut expensive subsidies on petrol and diesel. India's petroleum subsidy bill halved to $4.5 billion in the most recent fiscal year. In Indonesia, fuel subsidies accounted for just 0.5 per cent of GDP last year, down from an average of more than two per cent of GDP between 2011 and 2014. The improvement in government finances helps explain why household spending received only a minor boost.

The missing dividend means policymakers should probably also be less worried about the recovery in oil prices, which edged up to $50 per barrel this week. A moderate rise should be manageable as long as it comes with higher global growth. And while consumers may mourn their missing dividend, at least government budgets and corporate balance sheets in Asia are in better shape than if oil were still at $100 per barrel.