Economy to get benefit from controlling CPI when oil prices fall

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Stocks of many companies in the oil industry dropped sharply when crude oil prices dropped to a record low. Photo: Internet.

Impacts on domestic production and consumption

Recently, the WTI oil price has dropped to a record low when it dropped to less than one dollar/barrel in the context ofRussia and OPEC countries having agreedto cut production by 10 million barrels/day.

Assessing the impact on Vietnam's economy, Mr. Nguyen Bich Lam, General Director of the General Statistics Office, said that Vietnam is a country importing quite a lot of crude oil for processing and importing petroleum to use for production and use. Therefore, the drop in oil price will affect domestic production and consumption.

Petroleum is the input material of many economic sectors, reducing the price of gasoline makes production costs and product prices lower, improving the competitiveness of domestically-produced goods, thereby contributing to improve the competitiveness of the economy.

Also according to Mr. NguyenBich Lam, the decrease in petrol price also reduces the consumer price index (CPI), so the economy will be beneficial in controlling CPI. In fact, in the past few months, the decline in gasoline prices is an important factor causing the national consumer price index in February, March and April to drop, helping to reduce the average CPI of the first quarter and the first four months of 2020 compared with the average CPI of January and the first two months of 2020.

"This makes the inflation control of the economy likely lower than the National Assembly's target of 4%," Mr. Nguyen Bich Lam said.

Regarding the development of Vietnam's economic growth in the context of a sharp drop in crude oil prices, a representative of the General Statistics Office said the price of petroleum dropped in a very special period. Historically, oil prices have never been so low.

In the context of the global economy being affected by the Covid-19 epidemic, all operations stopped, the ability to consume gasoline takes a long time to recover to the level when the economy operates normally again as it did before the pandemic.

“Therefore, the reduction of crude oil at this time has no effect on promoting production and consumption.It will not affect the economies of countries in the world and Vietnam. I emphasize that the sharp drop in gasoline prices will only impact when the economy stabilizes,”Mr. Nguyen Bich Lam said.

Shares of oil enterprises plummet

A team of experts from the BIDV Training and Research Institute also had an evaluation report on the impact of petrol price reduction on the Vietnamese economy.

Experts of BIDV Institute said that, for Vietnam, the world oil price will continue to decrease in 2020, having both positive and negative impacts on the economy.

Firstly,with a positive impact, the falling oil price reduces the cost of imported gasoline, thereby helping to reduce the trade deficit as well as saving Vietnam a volume of foreign currency to import petroleum, especially in the context of Vietnam's trade deficit petrol and oil from 2015 to the present.

Citing figures from the General Department of Customs, experts said Vietnam's 2019 petroleum deficit was $5.6 billion. Thus, the decrease in oil prices is a positive factor to help Vietnam reduce the cost of imported gasoline.

Second, the reduction of oil prices has a positive impact on people's consumption and enterprises' operations. Thanks to the reduction in gasoline prices, people save costs, especially on transportation, thereby increasing consumption for the economy.

On the business side, especially for transport companies, the reduction of gasoline prices helps reduce input costs, contribute to reducing product costs, increasing competitiveness, as well as improving profits in general.

Thirdly, gasoline prices fall, reducing pressure on inflation, contributing to macroeconomic stability.

Assessing negative impacts, experts of BIDV Institute said that, the decrease in oil price reduces the State budget revenue from crude oil.

Because the role and proportion of crude oil revenues in the total State budget have decreased, the impact of the oil price reduction on the budget is not much, but when oil prices plummeted (especially lower than the estimated price), it will lead to a decrease in the budget revenue, making the budget balance more difficult, increase the budget deficit and public debt.

Moreover, the decline in oil prices has a negative impact on the mining industry, especially oil and gas, which currently accounts for about 7.8% of GDP structure. For some enterprises that exploit oil and gas is a core activity such as PVN, PVD, GAS,the low oil price will reduce the revenue sources, thereby affecting the exploitation and exploration plan of 2020, as well as subsequent years.

In addition, a number of listed petroleum enterprises are also affected by the sharp decline in stock prices and are under pressure to divest from investors.

In fact, the shock of world oil prices has had a strong impact on Vietnam's stock market, causing oil and gas enterprises' stocks to plummet.

Petroleum product prices plunge but enterprises still face difficulties VCN- From the beginning of the year to the current date, the petroleum price has reduced for ...

Information from HNX showed that at the end of the trading session on April 21, petro codes were in the red. A series of stocks of GAS, PLX, PVS, BSR, suffered heavy losses.