Oxford Economics: PH inflation, GDP growth to benefit from global oil price drop

MANILA, Philippines — Consumer prices in the Philippines and its economic growth stand to benefit from lower global oil prices, which UK-based Oxford Economics said may serve as a “modest” offset to the adverse impact of the COVID-19 outbreak.

“Under the current period of extreme uncertainty, the economic boost from a decline in oil prices will be modest. Relative to previous oil price collapses, monetary authorities will find it difficult to respond to the negative demand shock as deflationary pressures mount,” Oxford Economics economists Gabriel Sterne and Luka Raznatovic said in a March 10 report titled “Weak oil a modest global offset to coronavirus impact.”

Over the weekend, world oil prices plunged to a four-year low of about $30 per barrel over fears that the spread of COVID-19 was depleting global demand amid slower travel, tourism and manufacturing, coupled with the failure of the Organization of the Petroleum Exporting Countries (Opec) to agree on production cuts, Oxford Economics noted.

In case global oil prices stayed at the $30-per-barrel level for the rest of the year, an additional 0.5-1 percent could be added to the Philippines’ gross domestic product (GDP), Oxford Economics estimates showed.

Besides the Philippines, the other economies that could be big “winners” from an oil price slump would be China, India, Indonesia and Argentina, while Russia, Saudi Arabia, the United Arab Emirates (UAE), Mexico, Australia, Norway, Romania and Malaysia shall be the “losers,” Oxford Economics said.

On a global level, a low oil price environment would add 0.3 percent to world GDP, based on Oxford Economics estimates.

As for inflation, the global rate of increase in prices of basic commodities may dip by 1.1 percentage point (ppt) below baseline this year if oil prices continue to slide.

At a $30-per-barrel oil price scenario, inflation in the Philippines would be reduced by about 0.9 ppt from baseline.

Among emerging markets, India, China, the UAE, Indonesia, Poland, Bulgaria and Slovenia would also see 0.8-1.3 ppt reduction in inflation amid lower oil prices.

Oxford Economics noted that emerging market inflation was more sensitive to petroleum price adjustments relative to the world average as “advanced economies tend to use oil less intensively and so are less positively affected.”

“Cheaper oil prices should boost households’ real income growth, bolstering spending power once the recovery begins. But that point could still be a way off. In the short run, such income gains may not boost spending much given pessimism regarding coronavirus and the subdued consumer and business confidence,” Oxford Economics said.

Last Tuesday, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco G. Dakila Jr. pointed to a downside risk to domestic inflation partly due to the lower outlook for global oil prices.

But the state planning agency National Economic and Development Authority (Neda) had projected monthly inflation increase of 0.1-0.2 ppt as COVID-19 resulted into both demand- and supply-side risks.

Edited by JPV