COMMODITIES FX
middle-income economies, their output will become less complementary and more substitutive vis-à-vis advanced economies. The latter will therefore increasingly see them as competitors. The creation of regional free-trade agreements by advanced economies, such as the TTIP (Transatlantic Trade and Investment Partnership)
and the although it TPP
(Trans-Pacific Partnership) are clearly,
is not Source: GaveKal Data - powered by Macrobond
The reduction in the current account surplus implies an initial reduction in national income. Part of this is simply due
to the fact that expor t
demand (from the West) is coming down, rather than the result of a clear redistribution away from companies to households (which will take more time).
This is clearly
the case for China where the reduction in wage growth has gone hand in hand with the reduction in aggregate growth. And, for the moment, with it will the demand for oil .
Incidentally, it is not only the global economy that is transforming emerging markets. Emerging markets are transforming – through the provision of cheap labour
– advanced economies too. Even before the Lehman crisis, median
incomes had been
coming down in advanced economies. And they have continued doing so in spite of aggregate growth picking up again. Here too, oil demand has simply followed suit.
Finally, and leaving aside all potential other supply-side issues (increased efficiency, utilisation of alternative resources, countries imitating the US shale revolution), there is another way by which
the transformation emerging markets might of put
further downward pressure on oil prices. As emerging markets shift from export- driven low-income economies to more consumption-driven
officially admitted, responses to this development. The United States is part to both agreements, encompassing together more than half of the global economy. So far the United States has had a rather
restrictive energy export policy, in the sense that all exports require an ad hoc authorisation from the Congress. As soon as the TTIP and the TPP will be operational, the US – which by that time might reach a daily oil production equal to Saudi Arabia and Russia – will be “forced” to allow for free oil exports to all partners to these agreements, determining a dramatic upward shift in global oil supply.
In conclusion, as with the “true gold”, also with the “black gold”, that is to say oil, it is far from clear cut that emerging markets will continue to exercise upward price pressure.
Dr. Luciano Jannelli FX TRADER MAGAZINE October - December 2013 27
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