Continued rise in oil prices a big threat to PH economy
The Philippines would be the hardest hit among emerging markets next year if global oil prices reach $100 per barrel by yearend, according to the UK-based Oxford Economics.
“We see a risk that oil price rises have further to run, as the impact of US sanctions on Iran bites. In the short run, it is likely the supply impact will be offset by higher production elsewhere, but the market is tightening and all it would take is one more shock to supply (such as Nigeria) and oil could reach $100 per barrel,” Oxford Economics economist John Payne and head of global macroresearch Gabriel Sterne said in an April 24 report titled “Global impact of Brent at $100 per barrel.”
“The oil price response to geopolitical tensions can be viewed in the context of historical episodes of increased Middle Eastern tensions. Our modelling work suggests a change in nominal oil prices of $2.5 when the month is in a period of tension. Over the longer-term, however, we recognize that higher short-term prices could encourage market oversupply and result in lower prices,” it explained.
Based on Oxford Economics’ simulations, oil prices hitting $100 a barrel by the fourth quarter of 2019 would cut global gross domestic product (GDP) by 0.6 percent below baseline by end-2020.
Oxford Economics said it had a baseline for Brent “to bottom out at $63 per barrel this quarter, before slowly rising back to an average of $64 per barrel in 2019 and $66 per barrel in 2020.”
Also, skyrocketing oil costs would push global inflation rate upward by an average of 0.7 percentage point during the same period, it said.
At the worst case scenario, Oxford Economics said “global GDP growth would decline, dropping to 2.5 percent in 2020, while inflation would average 4 percent year-on-year in 2020, the sharpest spike in prices since 2011.”
“It would be particularly damaging for already-fragile, oil-importing emerging markets, such as the Philippines (minus 1.2 percent below 2020 GDP), Argentina (minus 0.9 percent), Turkey (minus 0.9 percent) and Indonesia (minus 0.8 percent),” Oxford Economics said.
Last year, the rate of increase in prices of basic commodities in the Philippines averaged a 10-year high of 5.2 percent, partly as global oil prices jumped during the third quarter of 2018.
Amid high inflation, GDP growth slowed to a three-year low of 6.2 percent last year.
Last month, the government cut its 2020 GDP growth target to 6.5-7.5 percent from 7-8 percent previously, citing external risks.
Oxford Economics’ simulations showed that China and India’s GDP would also be reduced by 1.1 percent and 1 percent, respectively, next year if Brent prices climbed to $100 per barrel.
According to Oxford Economics’ projections, the other “losers” to higher global oil prices included Spain, Hong Kong, France, the United Kingdom, South Africa, Brazil, Germany, Japan, the United States, Italy and Canada.
On the other hand, advanced economies “tend to use oil less intensively and so are less negatively affected,” Oxford Economics noted, such that huge oil exporters such as Russia, Saudi Arabia and the United Arab Emirates would stand to benefit from higher global prices.
Also seen as “winners” if oil prices rise are Norway, South Korea, Malaysia, Mexico and Australia.
