RISING oil prices may widen the Philippines trade deficit and push up inflation rate because the country imports most of its oil requirements, Japanese global financial firm Nomura said over the weekend.
Nomura said in a report the Philippines was one of the countries considered “clear-cut losers” as higher oil prices would likely impact the economy.
“Importing almost all of its oil needs, we estimate a $10/bbl increase in oil prices could increase the trade deficit by 0.5 percent of GDP, which would significantly pressure a current account deficit that already reached 0.8 percent of GDP in 2017 due to strong import demand,” Nomura said.
“We assess the potential impact of sustained, higher oil prices on 26 emerging market economies. The clear-cut winners include Saudi Arabia, Nigeria, Colombia and Malaysia, and the clear-cut losers are Turkey, India and the Philippines,” Nomura said.
The trade-in-goods deficit in 2017 increased 15.9 percent to $41.5 billion as the growth in imports of goods of 14.2 percent outpaced that of exports of goods at 12.8 percent.
Trade deficit surged 72.8 percent to $3.06 billion in February from $1.77-billion deficit a year ago as imports jumped 18.6 percent while exports declined 1.8 percent.
Total exports went down from $4.74 billion in February 2017 to $4.66 billion in February 2018. Imports increased to $7.72 billion in February 2018 from $6.51 billion in February 2017.
Total external trade in goods in February reached $12.38 billion, reflecting a positive growth of 10 percent from $11.26 billion recorded in the same month in 2017.
Nomura said aside from widening the trade deficit, the higher oil prices could also trigger an acceleration in inflation.
“CPI inflation”•which rose to 4.3 percent year-on-year under the new 2012 base year in March”•could rise by 0.2 pp with a relatively quick pass-through given no fiscal subsidies,” Nomura said.
It said this would push CPI inflation above the 2 percent to 4 percent inflation target of Bangko Sentral ng Pilipinas, “further supporting our call for 75bp of policy rate hikes this year starting in May, and there are risks of more rate hikes should oil price increases persist and second-round effects rise more quickly given the strength of domestic demand.”
Nomura said the economic impact of higher oil prices could be felt much more in emerging markets because when scaled by the size of a country’s economy, the bulk of the world’s major oil producing and consuming countries were in emerging markets.
It also said that emerging market economies were more energy intensive and less energy efficient than their developing markets’ counterparts.