The National Economic and Development Authority (Neda) expects the lower oil prices to drive up the country’s importation this year, with the windfall from fuel savings seen to trigger a ripple effect in consumption.
“The continuing low prices of oil bode well for the country’s consumer activity, given the relief from hikes in fares, utility costs and other consumer items. Industrial activity also benefits from the reduction in operating costs,” Neda Director General and Economic Planning Secretary Arsenio M. Balisacan said.
In November 2014 cheaper oil actually slashed the country’s import payments by 10.8 percent to $4.989 billion, from $5.593 billion recorded during the same period a year ago.
The lower oil prices brought down the country’s crude-import payments in November 2014. However, the Neda believes there will be an increase in oil imports toward the end of 2014 and the whole of 2015.
“The prevailing low-oil-price environment, which is expected to persist until 2015, may further increase the country’s total oil importation for the remaining part of 2014 and for the whole of 2015 given the country’s high dependence on imported oil,” Balisacan said.
“Imports of consumer goods will, likewise, remain positive for the remaining month of the year, mainly supported by the uptick in domestic consumption primarily of food,” he added.
Balisacan said low oil prices is a welcome development in the Philippine economy, which is primarily consumption driven. The World Bank estimates that 80 percent of the Philippine economy is accounted for by consumption, with household consumption accounting for 70 percent and government spending, 10 percent.
The Neda official said this is contrary to what is happening in the global economy. He said the fragile state of the global economy is causing uncertainties such as deflation and slowing consumer demand.
He added that the low-inflation environment should encourage agencies to encourage backward linkages among domestic industries. Programs that improve productivity must be instituted to take advantage of this, he said.
“These include programs that improve productivity through the use of technology and that facilitate access to credit, such as those of the Departments of Trade and Industry and Science and Technology,” Balisacan said.
Economists from private banks even expect inflation to moderate to 3.6 percent this year and 3.7 percent in 2016. These are lower than the central bank’s inflation projections.
The PSA said import payments for Mineral Fuels, Lubricants and Related Materials accounted for 18.8 percent of the country’s import bill.
The payments for these products decreased by 23.1 percent to $939.41 million in November 2014 from $1.222 billion in November 2013.
The PSA said petroleum crude contributed the biggest share of imports in this commodity group and accounted for 10.2 percent of total imports.
Apart from lower oil import payments, the Neda attributed the double-digit decline in the country’s import bill to lower imports of capital goods, which accounted for 15.8 percent of the total import bill.
Payments for capital good imports posted a decline of 59 percent to $789.41 million in November 2014 from $1.924 billion in November 2013.
The import of transport equipment is included in the import of capital goods. Data showed that transport equipment imports accounted for 7 percent of total imports reached $347.78 million, a 65.2 percent decline from $1 billion in November 2013.
“The negative performance of capital goods imports was largely due to the decrease in imports of aircraft, ships and boats, which partly reflects the trough period of the massive refleeting program of major airlines, as well as to the reduction in the import value of telecommunication equipment and electrical machinery,” Balisacan said.
Meanwhile, the country’s import payments between January and November 2014 amounted to $58.549 billion, a 2.8-percent increase compared with $56.965 billion in the same period of last year.
Electronic Products, the country’s top import product, accounted for 28.2 percent of the aggregate import bill. Electronic product imports amounted to $1.408 billion, a 21.8- percent growth from $1.156 billion in November 2013.
Among the major groups of electronic products, Components/Devices or Semiconductors, accounted for the biggest share at 24.4 percent. Last November there was a 48-percent increase in semiconductor import payments to $1.220 billion from $824.10 million in November 2013.
Oil extended losses to trade near an almost six-year low as Organization of Petroleum Exporting Countries’ (Opec) warning that prices may surge without new investment in production failed to shift the market’s focus from more immediate signs of a global supply glut.
Futures fell as much as 0.6 percent in New York. A spike to $200 a barrel is possible without adequate spending for the long term, Opec Secretary-General Abdalla El-Badri said. US crude inventories probably rose to 402.1 million barrels last week, the most in records dating back to August 1982, a Bloomberg News survey shows before a government report on Wednesday.
Oil slumped almost 50 percent last year amid the fastest pace of US crude production in more than three decades while the Organization of Petroleum Exporting Countries (Opec) resisted calls to reduce output. Prices may drop to as low as $30 a barrel, Gary Cohn, the president of Goldman Sachs Group Inc., said in an interview with CNBC on Monday.
“Supply is still the issue, we need to see that cut back,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone. “The potential is still for the downside in the near term because of that need to see a reduction in current production. Demand doesn’t improve rapidly on the falling price, it does take a while to kick in.”
West Texas Intermediate (WTI) for March delivery declined as much as 27 cents to $44.88 a barrel in electronic trading on the New York Mercantile Exchange and was at $45.04 at 3:55 p.m. Singapore time. The contract lost 44 cents to $45.15 on Monday, the lowest close since March 2009. The volume of all futures traded was about 43 percent below the 100-day average.
US supplies
Brent for March settlement slid as much as 37 cents, or 0.8 percent, to $47.79 a barrel on the London-based ICE Futures Europe exchange. It decreased 63 cents to $48.16 on Monday. The European benchmark crude traded at a premium of $2.96 to WTI.
Opec, which supplies about 40 percent of the world’s oil, is open to a meeting with nonmember producers to tackle the global glut, El-Badri said in an interview in London on Monday, estimating the surplus at 1.5 million barrels a day.
He didn’t offer a time frame for when oil could reach $200 a barrel and said the market will be brought back into balance by a reduction to supply, rather than an increase in demand.
US crude stockpiles probably climbed 4.25 million barrels in the week ended January 23, according to the median estimate in the Bloomberg survey of eight analysts before a report from the Energy Information Administration.
The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked shale formations from Texas to North Dakota. Production averaged 9.19 million barrels a day through January 9, the most in weekly records compiled since January 1983, data from the Energy Department’s statistical arm show.
(With Bloomberg News)