GDP growth seen slowing below 5% this year due to high oil prices

The country’s economic planners are now expecting gross product (GDP) growth to barely hit five percent in 2005, weighed down by the skyrocketing global price of crude oil.

Last Friday, world oil prices closed at an all-time high of $67.28 to the barrel. Dubai crude, the benchmark source of imported fuels, also closed at a record $58.25 to a barrel. The country is a net importer of Dubai crude, over 30 percent of which is utilized for power generation.

Budget Secretary Romulo L. Neri predicted that the GDP growth rate will slow down to about five percent while Socioeconomic Planning Secretary Augusto B. Santos said growth would likely be between 5.2 to 5.1 percent depending on the Dubai rate.

The Development Budget Coordination Committee (DBCC) has earlier placed its GDP forecast growth at 5.3 percent, the lower end of the original forecast of between 5.3 to 6.3 percent.

"The National Economic and Development Authority (NEDA) simulations show that a rise in the price of oil to an average of $60 per barrel starting August 2005 until the yearend will cause a slowdown in economic growth to around 5.2 percent, although it barely shaves the official GDP forecast of 5.3 percent," said Santos, who is also the NEDA director general.

He explained that the expected effect of a higher inflation rate arising from the increasing cost of oil and higher production costs would, in turn, dampen domestic demand and lead to a slower economic growth.

He further defended that the effect on GDP forecast may not be much due to the strong inflow of foreign exchange from overseas Filipino workers (OFW) remittances, which is projected at $9.4 billion.

The DBCC estimate of 5.3-percent GDP growth considers an average oil price of $48.95 per barrel for the year. If Dubai crude oil rises to $60 for the rest of 2005, the average oil price for the year will rise to $50.59 per barrel.

"In short, the spike to $60 would have been much more damaging to GDP if it happened near the start of the year, rather than four months away from the end," Santos stressed.

Meanwhile, former Finance Secretary and presently Asian Institute of Management (AIM) president Roberto de Ocampo said that the likely growth figure would be in the range forecast by international lending agencies and analysts.

Global institutions such as the Asian Development Bank (ADB) have placed the country’s growth rate at an average 4.7 percent. Aside from factoring in global oil prices, the economic experts also placed the poor revenue collections (especially the new revenue-boosting legislations), and political instability as among major contributing factors for the lower growth forecasts.

"Government tends to make more optimistic projections," De Ocampo said, adding that the dismal collections of the sin taxes and high import levels contributed to the less than optimistic projections.

Santos said the DBCC will review its assumptions and validate its economic projections for the rest of the year after the National Statistical Coordination Board (NSCB) releases the second quarter and first semester 2005 gross national product (GNP) and GDP figures tomorrow.

The DBCC is an inter-agency committee of the NEDA Board. Headed by the Department of Budget and Management, it recommends to the President the level of annual government expenses and government spending limits for economic and social development, national defense, and government debt service. It also earmarks expenditures for each development activity between current operating expenditures and capital outlays.