MARKETS: Oil exporters suffer biggest shortfall from commodity crunch

Economic developments for commodity exporters after a fall in prices vary significantly depending on the type of commodity, with oil exporters suffering the biggest shortfall in activity, according to research by Moody's Investors Service.

Slowing demand from some regions, a weaker global growth outlook and strong supply have dragged commodity prices down in recent months.
In this study, Moody's examined the path of commodity exporters' GDP in the aftermath of commodity price falls. The analysis centres on four commodities — oil, copper, iron ore and cotton and is part of a series of linked research on the pattern and implications of declines in asset prices.
Commodity price movements can have important credit implications for commodity exporters via lower export and fiscal revenues. Therefore large falls in commodity prices have potential negative implications for sovereigns' and other issuers' creditworthiness.
"For oil exporters, GDP falls on average by 7% below the paths seen before the price falls," said Ruosha Li, analyst in Moody's Macro Financial Analysis team. There were 4% and 2.5% shortfalls for copper and iron ore exporters, respectively. However, for cotton exporters, the GDP shortfall was small.
The particularly large fall in GDP amongst oil exporters is accounted for by typically higher reliance on the commodity for these economies.
"Taking into account the different levels of exposure to commodities and differences in the typical price fall, the average GDP shortfall is smaller for oil than for copper and iron ore," Li added. This likely reflects typically large fiscal buffers for oil exporters that allow policymakers to implement measures dampening the economic impact of the price shock.