Economies cooling in countries key to oil demand growth

Sept. 21, 2012
The economies of two countries crucial to oil-demand growth are cooling and, in one case, might be worse than indicated by official data.

The economies of two countries crucial to oil-demand growth are cooling and, in one case, might be worse than indicated by official data.

In the July update to its World Economic Outlook, the International Monetary Fund trimmed its projections for India’s gross domestic product from April forecasts by 0.7 percentage point each for 2012 and 2013.

It now projects Indian growth at 6.1% this year and 6.5% next year. The rates are down from 7.1% in 2011 and 10.8% in 2010.

The coalition government this week announced needed economic reforms from which political opposition has, in the recent past, forced it to retreat.

The new steps include increasing the controlled price of diesel and welcoming foreign investment to closed businesses such as retail.

For China, the IMF now projects GDP growth of 8% this year and 8.5% in 2013—down from 9.2% last year and 10.4% in 2010. Compared with April, the July numbers are down 0.2 percentage point this year and 0.3 percentage point in 2013.

Analysts at the US Federal Reserve Bank of Dallas think China’s outlook might be worse than official numbers suggest.

Citing the “dubious character of the official figures,” the bank’s August Economic Letter says estimates of Chinese growth during the 1998-99 financial crisis, based on economic activity measures such as energy production, air travel, and trade data, sharply undercut government reports.

Official data put average annual growth those years at 7.7%. The alternative estimates were 2-5%.

Now, the bank concludes from an analysis of electricity use, “evidence suggests that the situation may be worse than reported.”

So in India, reforms essential to sustained growth might not survive political opposition. And if they do survive, they might prove to have come too late.

In China—who knows? Welcome news there is an official effort, reported by the Dallas Fed, to improve collection and reporting of industrial production data.

In both places, the direction of net influence on the price of crude is down.

(Online Sept. 21, 2012; author’s e-mail: [email protected])

About the Author

Bob Tippee | Editor

Bob Tippee has been chief editor of Oil & Gas Journal since January 1999 and a member of the Journal staff since October 1977. Before joining the magazine, he worked as a reporter at the Tulsa World and served for four years as an officer in the US Air Force. A native of St. Louis, he holds a degree in journalism from the University of Tulsa.