Alvaro Ortiz, a BBVA research chief economist for Big Data and Turkey, said the outbreak has caused a fall in oil demand worldwide but this would be temporary until oil prices recover.
The coronavirus outbreak that emerged in China spread worldwide reporting 72,436 confirmed cases, and the deaths of over 1,869. As the outbreak is expected to lower energy consumption worldwide, several institutions revised both oil prices and demand forecasts.
Global oil demand is estimated to decrease by 435,000 barrels per day (bpd) in the first quarter of 2020, from the same period last year, to mark the first quarterly contraction in more than 10 years, the International Energy Agency’s (IEA) said in its latest monthly oil report.
Oil demand in China, the world's second-largest oil consumer, will also be reduced by lower economic activity, the IEA said. The U.S. Energy Information Administration also lowered the U.S.' crude oil production expectation for this year by 100,000 barrels per day.
"Oil prices immediately reacted to these revisions marking a decrease by 15-17%," Ortiz noted. International benchmark Brent crude dropped down to $54 per barrel last week amid the novel coronavirus outbreak. "We are now very close to $50 per barrel. However, we assume that the oil prices will start to recover soon and the coronavirus impact on the oil market will be a transitory one," he said.
-Negative effect on economic growth
On the renewables energy side, Ortiz said the impact of the outbreak would be seen in the longer term as renewables projects are designed to be long-lasting investments. China is one of the leading renewable energy countries in the world. According to IEA data, China accounts for 40% of global renewable capacity expansion over 2019-2024 during which the world is expected to add 1.2 gigawatts of installed renewable energy capacity.
"The relative prices of renewable energy projects will continue to decline and unfortunately the world has no Plan B to tackle climate change. I do not think that the outbreak is going to have a sizable impact on the positive trend of renewables," Ortiz explained. However, he said there is still some uncertainty over the definitive impacts of the coronavirus of which its spread has started to slow down.
"What I can say is that the economic analysis has positioned itself on the scenario that it will have a transitory effect on China's economy despite many uncertainties. We expect the outbreak will have a negative impact of 0.3-0.4% on China's economic growth, which will be seen in the first and second quarters," Ortiz explained adding that it would have some rebound effect at the end of the year.
He said the impact on the global economic growth is projected to be 0.2%. And countries with trade channel exposure to China, particularly Asian countries and Russia with oil exports, would be the first group to be negatively affected.
-Turkey expected to grow 4% in 2020
As the coronavirus generates volatility in financial markets, almost every country will suffer from the consequences, Ortiz asserted. In Turkey's case, it will not be immune to financial market volatility, but the 15% drop in oil prices will temporarily help improve the inflation rate given that Turkey imports around 90% of its oil needs from several countries, he explained.
Turkey's energy import bill stood at $41.1 billion in 2019 thanks to the oil price fall. Nevertheless, Turkey suffered from a currency crisis, which led many investors being unable to pay their debts. Ortiz concluded that as BBVA they expect that Turkey will grow 4% in 2020, which in turn will trigger further investment in the country. The Turkish government's forecast is for the economy to grow by 5% from 2020 to 2022.
(Anadolu Agency)