High oil prices to affect GDP growth

Economic Planning Secretary and National Economic and Development Authority (NEDA) Director General Augusto Santos said high oil prices could clip the country’s economic growth by a fraction below the 5.3 percent gross domestic product (GDP) growth target this year.

He said if the price of Dubai crude settles at $60 per barrel, the government has estimated GDP to grow by 5.2 percent, and slide down to 5.1 percent if Dubai crude reaches $70 per barrel.

Likewise, the chief government economic planner estimated that inflation will likely hover at 8 to 8.1 percent if Dubai crude averages between $60 to $70 a barrel.

"The inflation rate is expected to dampen domestic demand and lead to slower economic growth," Santos said.

Inflation had averaged 8.2 percent in the first seven months, well above the government’s full year of between 5-6 percent.

Santos said that the inter-agency Development Budget Coordinating Commiittee (DBCC) will review the macroeconomic indices as well as the medium to long-term growth targets in lieu of the record levels of world crude prices.

The country’s total oil demand represents nearly 37 percent of total energy requirement. The rest of the power needs are filled up by coal, hydro, natural gas, geothermal, and recently, wind resources.

"The oil bill is substantial but not enough to make a major dent in our economy," Santos stressed.

Dubai crude closed at $57.30 per barrel while its average price for the month of August was $56.05.

So far, the record level of Dubai crude stood at $57.80 last Aug. 12.

The average price of Dubai crude, which is the main benchmark for Philippine crude imports, was $33.63 a barrel last year. From a low of $27.27, oil prices zoomed to $41.26 in Aug. 2004.

World oil prices have been resetting record levels since the second semester of last year due to the huge demand from the United States, India, and the People’s Republic of China.

"The main factor is a robust 2.6 percent global demand growth for crude versus a supply growth of just 2.4 percent," Santos said.

The Cabinet official admitted that there is a strong pressure for the National Government to review and likely revise its 2005 growth targets.

After the first six months of the year, the government said it is looking at the lower end of its full year GDP of 5.3 percent.

Multilateral funding agencies however expected growth to range between four to five percent. The assumptions could likely be revised as these were formulated when Dubai crude was still below $50 a barrel.

Santos urged the national leadership to relentlessly seek alternative sources of energy and institutionalize energy efficiency and conservation practices.

"These will help insulate the economy from the uncertainty caused by volatile oil supply and price movements," the NEDA chief added.