Morgan Stanley: If oil prices remain at $120, the drag on consumption will be more significant.

Jinse Finance reported that on April 15, Middle East conflicts have not subsided and rising oil prices are impacting the Asian economy. Morgan Stanley’s Chief Asia Economist Chetan Ahya stated that before geopolitical tensions escalated, consumption growth in Asian economies (including China) was gradually improving. However, as energy prices rise, disposable income will be weakened in the short term, though policies and savings may act as buffers. He noted that if, in the next 3 to 4 months, the physical settlement price of oil drops below 90 dollars per barrel, the industrial cycle may regain momentum, thereby supporting capital expenditure, employment, and consumption. However, if oil prices remain around 120 dollars per barrel and fuel prices continue to climb, consumers will adjust their spending patterns and the drag on consumption could become more pronounced.Morgan Stanley China Chief Economist Xing Ziqiang’s team pointed out that since geopolitical tensions heightened, consumption growth in sectors related to China's “trade-in” initiative has continued to slow. The team explained that given China's relatively low dependence on energy imports, a low inflation starting point, and regulated fuel pricing, the direct impact of rising energy prices on household consumption may be limited. However, rising input costs may compress profit margins for downstream businesses, dragging down wage growth and employment, which in turn would hit consumption—especially against the backdrop of relatively weak wage growth.