Biggest Winners, Losers From Cheap Oil

Biggest Winners, Losers From Cheap Oil
Biggest Winners, Losers From Cheap Oil

With the oil prices falling in international markets, the Philippines is expected to be the biggest winner and Norway and Russia as the biggest losers in 2015, a report suggests.

Citing Oxford Economics’ “Oil-ipedia” released in December 2014, ABS-CBN News said that the Philippine economy will grow by an average of 7.6 percent over the next two years if oil dropped to $40 per barrel.

“As prices get lower, the prize to the fastest growing major economy goes to… the Philippines, whose GDP growth would pick up to 7.6% on average over the next two years, were oil prices to slump as far as $40 per barrel,” Oxford Economics said.

The report presented the impact of oil price declines on key macro and financial variables for 45 of the largest economies around the world.

The study did not explicitly say why the Philippines is expected to get a big boost from the drop in oil prices.

However, Oxford Economics noted, “A decline in the price of oil reduces the cost of living and of doing business. It results in a lower rate of inflation, boosting real incomes, corporate profits and equity prices. This supports household expenditure, and thus overall aggregate demand in the economy. Central banks typically reduce policy rates, easing credit conditions.”

The Philippine economy rose by 5.3 percent in the third quarter of 2014 from a year earlier, affected by a drop in public spending a farm output. This was the slowest growth since the fourth quarter of 2011.

The Oxford Economics study, which was released in December, simulated a $20 per barrel oil price decline relative to the November baseline. Oxford Economics said this implies Brent crude dropping to an average of $64 in 2015, before going back to $86 in 2019.

In this scenario, Oxford Economics said the world GDP increases by a modest 0.1 percent in 2015, and 0.4 percent above the baseline in 2017. “The increase in oil prices is essentially a redistribution of income between consumers and producers, so the positive overall impact reflects the greater sensitivity of expenditures of oil consumers react by more than those of producers,” it noted.

Among advanced economies, Hong Kong would be the biggest winner with its average GDP being 0.6 percent higher.

“At the other end is Norway with GDP being 0.3 percent lower. In around of all economies’, GDP is in the range 0.2-0.4 percent higher than in the baseline,” Oxford Economics said.

Meanwhile, Oxford Economics said Russia would be the biggest loser if oil plunges to $40. “At that price, Russia is at the bottom with growth slumping to -2.5% on average in the next two years, and that does not even incorporate fully Russia’s other issues,” Oxford Economics said.