Southeast Asia finds cheap oil ally boosting trade surpluses

[MANILA] Cheaper oil is boosting trade surpluses in some of Southeast Asia's biggest economies, giving policy makers more ammunition to guard against capital outflows should the Federal Reserve raise interest rates later this year.

Indonesia's trade surplus rose to a nine-month high in December, while the Philippines had its highest in five months in November. The current-account surpluses of the Philippines and Singapore will probably rise to a record this year, while Indonesia's deficit will be the smallest since a surplus in 2011, according to estimates by HSBC Holdings Plc and the World Bank.

"Definitely, oil is boosting trade and current-account surpluses and that reduces vulnerability to external uncertainties," said Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc. "Once the Fed raises interest rates, there will be some pressure on capital outflows. Central banks in the region could look into accumulating more reserves as a buffer." Emerging markets face risk of capital flight once the US starts raising rates, the International Monetary Fund has said, while Japan's recession and Europe's sluggish growth damp demand for the region's exports. Already, the Malaysian ringgit, Indonesia's rupiah and the Singapore dollar are the worst performers this year among Asia's 11 most-traded currencies tracked by Bloomberg.

Foreign reserves of Indonesia, Singapore and the Philippines will climb 5.5 per cent to a total US$480 billion by the end of 2016 from 2014, Citigroup Inc. forecast in a report last month.

The current account, which measures trade and financial flows including interest and dividend payments, is used by investors to gauge a nation's resilience to a crisis. Fuel- subsidy rationalization will "drive a faster improvement" in Indonesia's current account this year, Barclays Plc analyst David Fernandez said in a report, while revising upward his forecasts for external surpluses for Singapore and the Philippines.

Even so, weaker currencies may not translate to better exports as demand from advanced economies, particularly from the European Union, could remain subdued, Sanjay Mathur, head of research for Asia excluding Japan at Royal Bank of Scotland Group Plc in Singapore, wrote in a note last month.

Domestic consumption could limit the damage. The IMF forecast expansion in Southeast Asia's five-biggest economies will accelerate to 5.2 per cent in 2015 and 5.3 per cent in 2016 from 4.5 per cent last year, even as it made the steepest cut to its outlook for global growth in three years. The decline in crude prices by about half in the past six months is also benefiting countries including Singapore and the Philippines, which import most of their oil requirement.

"Most Southeast Asian economies should see an improved trade balance with lower oil prices and that's going to help current accounts," said Jeff Ng, an economist with Standard Chartered Plc in Singapore. "Having current-account surpluses, solid domestic economies - these will go a long way if emerging markets want to differentiate themselves."

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