The lower oil prices globally can speed up the Philippines’s gross domestic product (GDP) expansion rate, if the country would opt to spend the unexpected “windfall” from the savings generated from the considerable cut in fuel cost, an international credit watcher said.
In a recent statement, Standard and Poor’s (S&P) Ratings Services said the lower oil prices can give a “welcome boost” to Asia-Pacific countries—with the largest effect to be felt in the Philippines, Hong Kong, China and Thailand.
However, the ratings agency highlighted that the country must be able to spend these additional windfall—or the sudden, unexpected piece of financial gain—from lower oil prices to fuel further the economy rather than set it aside.
“Spending the windfall can raise GDP in key economies, while saving it will provide little or no stimulus to growth,” S&P’s Asia Pacific chief economist Paul Gruenwald said.
“If the oil-price windfall is largely spent, the effects on GDP are highest in the Philippines, Hong Kong, China and Thailand,” S&P said.
The ratings agency further said in this group of economies, a one-year drop in Brent Crude to $86 per barrel could raise output by a third of a percentage point.
Other countries, such as India and South Korea, will benefit from the lower oil prices but, at a lower rate, contributing about a fifth of a percentage point to their GDP.
The ratings agency said the countries in the region must take advantage of the potential benefit of the lower prices of oil to boost their output expansion for the year and the year ahead.
“The sharp decline in oil prices has the potential to give a timely GDP boost in Asia Pacific. Momentum in the region has been flagging in late-2014 as Chinese growth has slowed and global trade has yet to rebound. So even a modest boost to activity will be welcome,” S&P said.
“The key is whether the beneficiaries of the oil-price windfall spend it or save it. And that, in turn, depends on their expectations regarding the future direction of oil prices,” it added.
In the country, the most immediate effect to the big rollback in oil prices is the lower cost of transportation, particularly in jeepney fares, as the Land Transportation Franchising and Regulatory Board implemented a P1 cut in minimum fare just this month.
The Asian Development Bank (ADB) also said the decline in oil prices will boost growth in many countries in Asia, particularly net oil importers like the Philippines.
The price of Brent crude declined in the second half of 2014 to below $64 per barrel on December 11. The year-to-date average of $101 per barrel is 6.8 percent lower than the 2013 average price and much lower than the $105 earlier forecast by the ADB.
“Simulations using the global projections model suggest that developing Asia, where most economies are net oil importers, could see an additional 0.5 percentage point of growth in 2015 if prices remain favorable to buyers,” the ADB said.
With Cai Ordinario