Fragile Five Nations Turn Lucky Five on Cheap Oil, BofA Says

Net energy importers from Turkey to South Africa are shaking off their image as vulnerable economies with the slump in oil prices helping them narrow trade deficits and cut inflation, Bank of America Merrill Lynch said.

Turkey’s trade deficit is set to narrow to about 5 percent next year from 8 percent in 2013, Turker Hamzaoglu, an economist at Merrill Lynch, said at a news briefing in London. Oil below $70 is also boosting the investment appeal of South Africa and may help India overtake China in economic growth, he said.

“The deficit countries, who were at risk because of shrinking dollar liquidity and higher rates, are now becoming the Lucky Five,” Hamzaoglu said. “We have to differentiate between who benefits from this commodity price drop.”

Morgan Stanley last year dubbed the currencies of Turkey, South Africa, India, Indonesia and Brazil as the “fragile five,” saying the nations’ deficits and high inflation made them susceptible to capital outflows should interest rates rise in the U.S. The countries are all net crude importers, apart from Brazil, meaning their trade balances have benefited from this year’s 40 percent slump in the oil price. Brent may fall below $60 a barrel before rebounding in the second half of 2015, Bank of America said.

Turkey imports more than 90 percent of its oil and about 70 percent of its total energy needs, according to energy ministry data. Each $10 decline in the oil price yields a $4.5 billion to $5 billion drop in its current-account deficit, Finance Minister Mehmet Simsek said in an interview in London on Dec. 2.

India, the world’s fourth-biggest oil importer, could overtake China in economic growth in the next three to five years if the country’s government delivers on promised policy changes, Hamzaoglu said. India’s economy expanded at 5.3 percent in the third quarter, while China’s grew at 7.3 percent.

“India was the first country to break out from the fragile five and the new government has just introduced all those reforms,” Hamzaoglu said. “We are optimistic about the way India is talking about the reform agenda.”

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