PHL seen a major beneficiary from oil price plunge to $40

The Philippines is considered among the biggest beneficiaries of falling crude which just recently passed a record low of below $50 per barrel.

The low oil prices will support the growth momentum of the country that momentarily slowed down as a result of stalled public spending that was believed to be the backlash of a Supreme Court ruling that declared unconstitutional some aspects of the stimulus scheme Disbursement Acceleration Program (DAP).

US-based Real Investment House analyst Ric Cox said the country’s huge fuel bill is another hindrance to the strong gross domestic product (GDP) expansion.

At present, energy imports account for 40.9 percent of the country’s total domestic-energy usage. “The Philippines economy has been on a strong upward trend in recent years, on the back of unaccustomed political stability, a stability that looks set to become established as the new norm for the country after years of untrustworthy politicians and military coups,” Cox said.

He said that fundamentals favor a growth momentum. He said the country has a young population that generally speaks English while public debt and banking stability are improving.

The population of just over 100 million has been growing quickly, has a median age of 23.2 years, fertility rate of 3.07 with 50 percent now urban based, all the sorts of macro indicators that economists like, Cox said.

According also to a report by the well-respected Oxford Economics, the Philippines economy would be the greatest beneficiary of any economy in the world from the collapsing oil prices. The report predicted that if oil were to stay at $40 per barrel, GDP growth this year would be at 7.6 percent compared to China at 7.1 percent and Indonesia at 5.8 percent that would make the country’s economy the fastest-growing in the world.

The Oxford Economics report cited strong growth drivers in outsourcing, manufacturing, agriculture and construction.

The Asian Development Bank (ADB) also noted that the low oil prices would be a boon for most economies in the region.

“With oil and commodity prices falling, most developing Asian economies have revised their inflation forecasts downward. The forecast for the region is lowered to 3.2 percent in 2014 and 3.5 percent in 2015, from the Updates 3.4 percent and 3.7 percent,” it said.

“Falling global oil prices present a golden opportunity for importers like Indonesia and India to reform their costly fuel subsidy programs,” ADB Chief Economist Shang-Jin Wei said.

“On the other hand, oil exporters can seize the opportunity to develop their manufacturing sectors as low commodity prices tend to make their real exchange rates more competitive,” he added.

Finance Undersecretary and Chief Economist Gil Beltran agreed to the assessment, saying that oil at $40 would result in $6 billion more to the economy, mostly from consumer spending.

Beltran said the country, which imports almost all of its oil, would be a main beneficiary from the falling oil prices.

Cox said that risk factors on the country have been reduced by years of economic growth and political stability.

Oxford’s report titled “Oil-ipedia!” indicated that lower oil prices would cause inflation to drop and potentially allow the Philippines to lower its 4-percent interest rate. For Asian economies that have relatively small or no fuel subsidies, including the Philippines, South Korea and Taiwan, Credit Suisse expects inflation to fall sharply due to the lower oil prices, allowing for “more dovish monetary policy than would otherwise have been possible.”

The analysts expect slower than previously forecast interest-rate hikes in the Philippines in 2015, while South Korea and Thailand could cut rates further. Already, lower fuel prices have delivered South Korean consumers an effective tax cut of 0.7 percent of nominal GDP.

Ironically, despite the big fall in the price of crude oil, the Philippines net imports, the difference between the country’s crude oil imports and exports in the first nine months of 2014 rose by 2.98 percent to $9.68 billion in the period from $9.4 billion a year earlier.

PhilEquity analyst Valentino Sy said the plummeting oil prices would be a game changer for the Philippine economy.

This paradigm shift from $100 oil to $40 oil is a game changer not just for corporations, but the country as well, he said.