Lower global oil prices would partially offset the adverse impact of the COVID-19 pandemic on the Philippine economy, UK-based Oxford Economics said.
“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,” the think tank said in a March 10 report.
The report’s title summarizes their findings: “Weak oil a modest global offset to coronavirus impact.”
Over the weekend, world oil prices plunged to a four-year low of about US$30 per barrel over fears that the spread of COVID-19 was depleting global demand amid slower travel, tourism, and manufacturing.
The failure of the Organization of the Petroleum Exporting Countries (OPEC) to agree on production cuts aggravated the situation, Oxford Economics noted.
Global oil prices staying at the $30-per-barrel level for the rest of the year could add 0.5-1 percent to the Philippines’ GDP, Oxford Economics estimates showed.
Besides the Philippines, the other economies that could be big “winners” from an oil price slump would be Indonesia, China, India, and Argentina. By contrast, Malaysia, Russia, Saudi Arabia, the United Arab Emirates (UAE), Mexico, Australia, Norway, and Romania 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 essential commodities may dip by 1.1 percentage point (ppt) below baseline this year if oil prices continue to slide.
A $30-per-barrel oil price scenario would reduce inflation in the Philippines by about 0.9 ppt from baseline.
Among emerging markets, Indonesia, India, China, the UAE, Poland, Bulgaria, and Slovenia would also see a 0.8-1.3 ppt reduction in inflation amid lower oil prices.
Emerging market inflation was more sensitive to petroleum price adjustments relative to the world average. Oxford Economics noted that “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.