Over the weekend, world oil prices plunged to a 4-year low of about US$30 per barrel.
The collapse of oil prices came after OPEC kingpin Saudi Arabia had led a push to reduce output further to shore up prices amid plummeting demand. But the move was blocked by Moscow, the world’s second-biggest oil producer, prompting Riyadh to slash prices.
Prices have swung wildly since and fell heavily again Wednesday, mirroring falls on global stock markets, after Saudi Arabia and Gulf partner UAE said they would open the oil taps further.
If global oil prices stayed at the US$30-per-barrel level for the rest of the year, consumer prices in the Philippines and its economic growth stand to benefit.
PH Inflation Likely to Slow Down
The Philippine economy could emerge as a big winner from the oil price slump. The decline in global oil prices as well as the weak demand for petroleum products due to the impact of the coronavirus outbreak could help ease inflation.
The National Economic and Development Authority (NEDA) had projected monthly inflation increase of 0.1-0.2 percentage points as COVID-19 resulted into both demand-and-supply side risks. The country’s inflation rate has already rose to 2.9% in January from 2.5% in the previous month. This was, however, still lower than the 4.4% rate recorded in the same month of 2018.
Cheaper oil prices are expected to boost households’ real income growth, bolstering spending power once the recovery begins. But that point could still be a way off according to Oxford Economics.
Economists Gabriel Sterne and Luka Raznatovic said that, “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.”
In the short run, such income gains may not boost spending much given the pessimism regarding coronavirus and the subdued consumer and business confidence. At a US$30-per-barrel oil price scenario, however, an additional 0.5-1% could be added to the Philippines’ gross domestic product (GDP). On such price scenario, inflation in the Philippines would also be reduced by about 0.9 percentage point from baseline.