Thailand
High energy prices to cut into Philippines GDP
MANILA, Philippines — The rise in energy costs due to higher global oil prices amid the Ukraine-Russia war will drag down the Philippines’ gross domestic product (GDP) by as much as one percentage point, ANZ Research said.
Sanjay Mathur, chief economist for Southeast Asia and India at ANZ Research, said in a note that surging global oil prices pose a multi-dimensional threat to growth and macro stability in much of the Association of Southeast Asian Nations (ASEAN) and India.
“Higher cost push price pressures from rising food and energy prices pose the ‘first order’ impact on the region’s growth-inflation-current account configuration,” Mathur said.
In a note titled “ASEAN and India: The Various Dimensions of High Oil Prices,” Mathur said energy prices are the most pervasive of these cost pressures in the short-term.
ANZ pointed out the Philippines is the second largest net importer of energy in ASEAN with 3.3 percent of GDP, next to Thailand’s 5.6 percent of GDP.
As such, ANZ sees the Philippines booking the largest impact on GDP growth if energy prices increase between 10 and 30 percent this year.
“As Indonesia and Malaysia are net energy exporters, they stand to gain from higher prices via stronger terms of trade. By contrast, Thailand is the worst impacted, followed by India, and the Philippines,” Mathur said.
ANZ said a 10 to 30 percent increase in energy prices could drag down the GDP growth of the Philippines by 33 basis points to as much as 100 basis points.
The Philippines emerged from the pandemic-induced recession that stretched five quarters with a GDP expansion of 5.6 percent last year, reversing the 9.6 percent contraction in 2020 as a result of the impact of the COVID-19 pandemic.
The Cabinet-level Development Budget Coordination Committee (DBCC) sees the GDP growth accelerating to a range of seven to nine percent this year, as the economy further reopens due to accelerated COVID vaccine rollout.
“We note that private domestic demand only surpassed 2019 levels (average) in H2 2021 and exceeds it comfortably only in India and the Philippines. The improvement has been more tepid in the others, and Thailand in particular,” Mathur said.
He said the Ukraine-Russia conflict erupted at a nascent stage of the post-pandemic recovery, as not all business cycle metrics are back to pre-pandemic levels.
According to ANZ, real oil prices in the Philippines and Malaysia are above their 2011 to 2014 peaks.
“Absorbing higher energy prices will be more challenging now than at a more mature phase of the business cycle – the actual impact on real incomes of households or corporate profit margins is likely to be greater,” Mathur said.
Although higher oil prices are positive for overseas Filipino workers (OFWs), ANZ said the amount is not enough to offset the ballooning trade deficit arising from faster imports due to the reopening of the economy.
To address the impact of rising oil prices, Mathur said the Philippines has raised subsidies for the public transportation sector and is considering a suspension of the fuel excise tax, measures that could amount to 0.7 percent of GDP.
ANZ said the potential response of central banks to the deterioration in growth-inflation-current account mix is unclear at this stage.
“Taking into consideration the uneven nature of the post-pandemic recovery, central banks may be inclined to temporarily diverge from their inflation targeting frameworks. Such an outcome is not without precedent – in the Philippines, the Bangko Sentral ng Pilipinas (BSP) has persisted with an accommodative stance since 2021, even though headline inflation breached the ceiling of its target range of two to four percent for several months,” ANZ said.
Source: https://www.philstar.com/business/2022/03/11/2166383/high-energy-prices-cut-philippines-gdp