Oil prices to drop further this year

CEBU, Philippines - The dip in oil prices will likely continue this year that could translate to faster domestic consumption growth, which is a big component of the Philippines’ economic output.

Maybank Kim Eng’s Economics Research said the sharp fall in fuel prices would further boost domestic demand and the buying power of consumers. This will also affect the country’s gross domestic product growth. MKE, an Asian financial services group, estimates Philippine GDP to rise 7 percent this year.

“It may be the steep fall of crude oil prices in the fourth quarter of 2014 which translated immediately to lower pump prices that helped accelerate growth of private consumption,” Luz Lorenzo, economist at MKE, said in a research note.

Lower oil prices have also tempered the country’s oil import bill, it said. Imports of mineral fuels, lubricants and related materials accounted for 21 percent of total imports of US$59 billion in the first 11 months last year.

“We expect lower oil imports will offset the increase in other imports that may result when port congestion eases,” Lorenzo, head of research, said.

Thus, she sees import growth to be restrained and the positive contribution of net exports -- the value of a nation’s exports minus its imports -- may be sustained this year.

Contributions

Maybank said improved contributions from both private and public consumption and net exports drove the country’s GDP growth in the final quarter of 2014 to rebound 6.9 percent. This brought a full-year growth of 6.1 percent, higher than Maybank’s 5.9 percent estimate. It can be recalled the decline in public spending and farm output were mainly blamed for slowing growth in Q3.

The economic planning agency said the latest economic data are above market forecasts of 5.8 percent for 2014 and 6 percent for the fourth quarter. But the overall economic expansion fell short of government’s target of 6.5-7.5 percent.

With the better-than-expected performance, the Philippines, the fifth biggest economy in Southeast Asia, posted the best growth in Asia after China last year.

In a statement, Economic Planning Secretary Arsenio Balisacan said: “The numbers tell us that we are moving in the right direction. There may have been some glitches along the way as we adjusted to the new systems that the government had put in place in pursuit of good governance.”

“But clearly the economic policies and strategies we are implementing to achieve sustained and inclusive growth are bearing fruit,” he added.

Private consumption’s contribution to GDP last year grew 3.7 percentage points, well below 4 ppts in 2013; it went up slightly faster 5.1 percent from 5 percent.

State spending also rose 9.8 percent in the last quarter from a contraction of 2.6 percent in third quarter. This reversal added 0.8 ppts to GDP.

Net exports also supplied 3.3 ppts in Q4 on subdued import growth.

The three economic sectors -- agriculture, industry and services -- saw improvements in terms of production. Agriculture sector significantly grew 4.8 percent in Q4 in 2014 from 0.9 growth in the same period in 2013. Industry also rose 9.2 percent in Q4, boosted by sustained growth in manufacturing, construction and utilities. Stronger growth in government services also drove the services sector by 6 percent in Q4.

“Although still weak, improved public spending consumption and investment was evident in 4Q14,” Lorenzo said.

Growth in government spending was seen in public administration services which improved 10.9 percent in Q4 from a 2.9 percent decline in Q3. Public construction expenditures, after two successive quarters of contraction, grew 5.1 percent in Q4.

Lorenzo said: “We believe this points further acceleration this year with the 2015 budget of the national government providing for a 15 percent increase in expenditures and bolstered further by the supplemental 2014 budget of P22 billion aimed mostly at typhoon-ravaged areas.”

Public spending dropped to 1.8 percent from 7.7 percent in 2013 and public construction expenditures fell 1.5 percent from 14.9 percent following the issues with fund disbursements.

Much of the growth this year will largely depend on government’s ability to spend its P2.6 trillion national budget.

The government believes the original GDP growth goal of 7 to 8 percent this year remains a realistic target.  (FREEMAN)