Efic releases latest World Risk Developments report — Oil, China FTA in the spotlight

Image credit: flickr user: Scottish Resilience Development Service

Australia’s export credit agency Efic has released its latest issue of World Risk Developments, examining the winners and losers of a rapid decline in oil prices, which have slid 30% since peaking in June to a four-year low.

Image credit: flickr user: Scottish Resilience Development Service
Image credit: flickr user: Scottish Resilience Development Service

The report, which was composed by Efic’s Economists Cassandra Winzenried, Fred Gibson and Roger Donnelly, predicts that lower oil prices will give a significant boost to the world economy, major trading partners and to energy-consuming export industries.

On the flip side, the report points out that lower prices for coal and gas exporters will lower energy export earnings, which in turn will result in deferred capital spending on new projects.

“Lower oil prices will benefit the world economy, Australia’s largest export markets, and energy hungry export sectors like agriculture and manufacturing,” said Efic’s senior economist Cassandra Winzenried.

“But sustained lower oil prices create new hurdles for Australia’s resources exports. Lower prices will exacerbate existing downward price pressure on coal and LNG — meaning lower energy export earnings, and deferred capital spending on new projects.”

This month’s newsletter also considers new opportunities for SME exporters arising from the landmark China-Australia Free Trade Agreement announced last week.

“This trade deal delivers unprecedented access to China’s burgeoning agricultural and services markets. This will boost Australia’s non-resource export competitiveness and promote diversification of exports — an important economic cushion as the mining boom ends,” said Ms Winzenried.

The newsletter also looks at how Russia’s economy is struggling to cope with ongoing geopolitical tensions, tough western sanctions and now rapid falls in the oil price.

“This will test the resolve of policymakers to sacrifice growth in order to shore up financial stability, by accepting rapid declines in the exchange rate,” concluded Ms Winzenried.