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international commodity prices and the slowdown in the Chinese economy. On balance as seen in Table 2.3.1.1.1 global growth in 2015, projected at 3.3, is likely
to be marginally lower than in 2014. Despite a marginal slow down, the high demand for goods and services associated with high growth rates in emerging and developing
Asia represents an important export opportunity for Timor-Leste.
Table 2.3.1.1.1: Real Global and Regional Growth Rates
Country Actual
Forecast
2013 2014
2015 2016
World 3.4
3.4 3.3
3.8 Advanced Economies
1.4 1.8
2.1 2.4
Emerging and Developing Economies 5.0
4.6 4.2
4.7 Emerging and Developing Asia
7.0 6.8
6.6 6.4
China 7.7
7.4 6.8
6.3 Timor-Leste
2.8 6.0
4.1 5.1
Sources: WEO Update 2015 IMF, Ministry of Finance, 2015 Growth forecast
2.3.1.2 International Price Trends
Global inflation driven by falls in the price of oil and other commodities is expected to decrease from 3.5 in 2014 to 3.2 in 2015. The lower forecast inflation in the
advanced economies of 0.4 reflects the declines in international commodity prices and continued weak demand in Japan and the Eurozone. In contrast, inflation is
expected to increase marginally in the emerging and developing economies from 5.1 to 5.4 in 2015, although recent oil price and exchange rate volatility have
added considerable uncertainty to this estimate.
Table 2.3.1.2.1: Global and Regional Inflation Rates
Actual Forecast
2013 2014
2015 2016
World 3.9
3.5 3.2
3.3 Advanced Economies
1.4 1.4
0.4 1.4
Emerging and Developing Economies 5.9
5.1 5.4
4.8 Emerging and Developing Asia
4.8 3.5
3.0 3.1
Timor-Leste 9.8
0.7 1.4
1.8
Sources: WEO Database April 2015 IMF
International Oil Prices
Oil prices fell significantly in the second half of 2014; by January 2015 the price of a barrel of oil had fallen by 60.8
2
from its peak in June 2014 see Chart 2.3.1.2.2. This brought an end to a four-year period of price stability at around 105 per barrel.
2
Brent Spot Price, Energy Information Agency
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After a partial recovery in the first half of 2015 the price of oil began falling again. These recent falls in the price of oil have been driven by a combination of increased
global supply and reduced global demand.
The global supply of oil has increased significantly in recent years due, in part, to new technologies such as hydraulic fracturing fracking and horizontal drilling.
Arguably the biggest driver behind this price fall was the decision made by the oil
a ket’s s i g p odu e
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Saudi Arabia to maintain their current production levels despite the recent increase in global supply. On the demand side the continuation of
Eu ope’s slo e o e , the slo do of the Chi ese e o o a d the app e iatio of the US dollar against other major currencies have all contributed to lower oil
prices. Though oil prices are expected to recover slightly in 2016, the medium term outlook suggests that the price of oil will not return to 2014 levels in the near future.
As explained in Section 2.5.3, the current and projected price of oil affects the calculation of future petroleum revenues and the Estimated Sustainable Income
ESI , hi h i tu affe ts the Go e
e t’s e pe ditu e pla s. The Go e e t
closely monitors changes in international oil prices and their impact on the ESI. However, by the end of 2015 it is estimated that approximately 89 of Timor-
Leste’s petroleum wealth will be held in international financial markets. This makes the
Pet oleu Fu d’s i est e t pe formance crucial and reduces the impact of oil price fluctuations on the ESI.
In addition, the decrease in oil prices will benefit both consumers and non-oil producers in Timor-Leste. The fall will benefit consumers through lower prices on
fuel and products which use oil intensely in production. In addition, non-oil producers will benefit from lower transport and production costs, as well as from
i eases i o su e s’ disposa le i o es.
International Food Prices
A significant proportion of the food consumed in Timor-Leste is still imported and thus changes in international food prices can have a significant impact on both the
rate of inflation and standard of living. According to the International Monetary Fu d’s IMF Food Price Index international food prices have fallen by 19.0 since
January 2014, while the price of rice, the staple food for the majority of the Timorese people has fallen by 12.1 over this period. The IMF is forecasting that food prices
will continue to fall throughout the rest of 2015 and then stabilise in 2016.
The international price of coffee, Timor- Leste’s la gest o -oil export, has been
highly volatile in recent years and has fallen significantly over the past 12 months. This price fall will negatively impact the welfare of Timorese coffee farmers. This
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Producer who uses their spare capacity to increase or decrease supply to stabilize market prices.
