Energy, the stone in the shoe of Asian growth

Growth in the Asia Pacific region was strong in 2021 and it was estimated a month ago that 2022 would be a year of strong growth (4.6%), especially for the ASEAN bloc countries. However, as the region is the largest importer of energy and one of the largest importers of food in the world, the impact that the price increase for these products is having since the Russian invasion of Ukraine will be significant, both on the trade balance and on the growth rate of the region.

The Asia Pacific and India region grew by 6.2% in 2021, driven by strong growth in China and India (8.1% and 8.7% respectively). The ASEAN bloc (made up of 10 Southeast Asian nations) also experienced growth, albeit noticeably lower (3.1%), due to restrictions on tourism, one of the pillars of economies such as the Philippines, Vietnam and Indonesia. Likewise, the coup d'état in Myanmar dropped its GDP sharply (-18%) while the country enters into civil disobedience, with the possibility of generating civil war.

The region is the largest importer of oil and gas in the world. In 2020, it accounted for 50 per cent and 71 per cent of total imports of these products globally, in a figure that exceeded 600 billion dollars. The economic crisis caused by the pandemic caused oil to reach particularly low numbers that year, but the gradual reopening and economic recovery led to the average price of a barrel of crude oil rising by about 70% in 2021, reaching an average of more than $70 per barrel of Brent. The average for 2022 is more than 20% above that figure, and 15 days after the start of the current stage of the Russian invasion of Ukraine the price is $100 per barrel. In gas, the increase was even greater, with the Japan Korea Market (liquefied natural gas benchmark) going from $3.29 per million BTU on average in 2020 to $15.16 in 2021. The price of the same gas for April 2022 is 37 dollars.

The increase in energy prices would have been one of the reasons why in 2021 the region grew less than estimated, something that will undoubtedly be repeated in 2022. While the outcome of the conflict is still uncertain, Asian countries will have to allocate several hundred billion dollars to meet their energy needs. This will entail not only a major deterioration in the trade balance, but also a dramatic increase in the cost of manufacturing production, one of the pillars of growth in the countries of the region.

Despite this, it is worth noting that it is unthinkable that the increase in energy prices will lead to a crisis, or to a severe lack of supply because we do not have the resources to pay the new prices. Central banks in Asia Pacific and India have accumulated $7.6 trillion (about 15 GDP from Argentina) and in the last two years, despite the pandemic, they have accumulated $765 billion (almost 20 times the reserves that Argentina has today).

Asia Pacific economies have seen strong growth in the decade leading up to the pandemic, averaging more than 5% per year. This expansion, based on the availability of a large workforce (with a workforce of 1.67 billion people), a substantial improvement in infrastructure and the development of innovation capacities has required an enormous amount of energy, which has not been able to be supplied by the significant increase in domestic production. The new geopolitical scenario poses a renewed challenge to the region, which, however, has on several occasions demonstrated its resilience in the face of adversity.

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