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Roses and headwinds

Bing Matoto



There have been impressive strides achieved by the government during the first three years of the Duterte administration, particularly in the economic front, as articulated by the economic managers during the Pre-SoNA 2019 conferences. But like everything else in this world, life is not always a bed of roses. Some obstacles are inevitable, but hopefully like the proverbial headwinds when you fly, these will not be enough to completely derail, but will only delay the flight plan. With the caveat that my view might likely be different from what others may think, allow me to briefly go through a few points of what I believe are the roses and possible headwinds.

“ Although our numbers are decent and gradually improving, clearly, we still have some significant catching up to do to be at par with our closest neighbors.

Right now, everything seems to be literally a bed of roses for the economy. Based on what I Googled in Trading Economics, the gross domestic product (GDP) of the country, which is our economic scorecard, reached a high of $330.91 billion in 2018 or approximately 0.53 percent of the world’s economy. For some perspective, our GDP averaged $81.6 billion from 1960 to 2018, while our record low of $4.4 billion was in 1962. At the end of the final year of the Aquino administration in 2015, our GDP was at $292.77 billion. Comparing ourselves to the world and some of our ASEAN neighbors, the GDP of the United States in 2018 was at $20,494 billion, China at $13,608 billion, Japan at $4,970 billion, Indonesia at $1,042 billion, Thailand at $504.9 billion, Singapore at $364 billion, Malaysia at $354 billion and, lower than our GDP, Vietnam at $244.95 billion.

Although our numbers are decent and gradually improving, clearly, we still have some significant catching up to do to be at par with our closest neighbors.

Other than the actual monetary value of the country’s economic output, another important measure of how the economy will likely trend going forward is the annual GDP growth rate.

For the Y-o-Y (year-on-year comparison) third quarter of 2019, our country is forecasted by Trading Economics to register at 6.7 percent representing a big bump up from the second quarter’s 5.6 percent. In comparison, Indonesia is at 5.07 percent for 2019 first quarter (only data available), while Vietnam was at 6.7 percent as of the second quarter, China at 6.2 percent, Malaysia at 4.5 percent, Thailand at 2.8 percent and Singapore at 0.1 percent. For this particular measure, we are in the upper quartile of growth rates, understandable, given our still smaller economic base compared to our richer, more developed neighbors.

Inflation rate dipped to a low of 2.7 percent for the second quarter of 2019 as the rise of food prices, non-alcoholic beverages, utilities, fuel and transport eased from the previous quarter. This compares favorably to our inflation rate average of 8.35 percent from 1958 to 2019. However, Trading Economics forecasts our inflation to move up to 3.2 percent by the end of the third quarter, but to trend at 3.3 percent for 2020, still very much within the government’s target range of two percent to four percent. By comparison, our key neighbors, with the exception of Indonesia at 3.28 percent, fared better than us on inflation, with Singapore at 0.6 percent for the second quarter of 2019, Thailand at 0.87 percent, Malaysia at 1.5 percent, Vietnam at 2.16 percent and China at 2.7 percent. Barring any unforeseen shocks, the inflation rate numbers suggest that, theoretically, our cost of living should stay at about the same level, which, hopefully, could tamp down the political noise, at least in the near future.

With the inflation rate hovering at manageable levels, the market has concluded that the Bangko Sentral ng Pilipinas is likely to ease up some more on the current interest rate of 4.5 percent, which was previously at 4.75 percent. For comparison, Vietnam, with its gangbuster growth rate trajectory, is comparatively high at 6.25 percent presumably to temper potential inflationary risks, Indonesia is at 5.75 percent, China at 4.35 percent, Malaysia at three percent, Thailand at 1.75 percent, and Singapore at 1.67 percent.

With apologies to my economist friends and readers, with my cursory knowledge of economics, allow me to propound the following scenario. A reduction in the interest rates should augur well for industry and the country in general. As borrowing rates drop, fueled by cheaper credit, customer demand for a host of consumption products and services, such as food, entertainment, travel, electronic gadgets, cars and housing, will increase, boosting bottom lines for businesses, and I might add increasing tax revenues, eventually prompting a need for the expansion of the business. Furthermore, the government’s massive infrastructure program unquestionably provides a significant boost as well, 5.1 percent of GDP in 2018. And as this virtuous cycle continues, the economy expands, and everybody is happy.

Sounds like a bed of roses, right? Well, as the saying goes, unfortunately, sometimes s**t happens and something unforeseen, an unexpected shock, derails everything that you plan and prepare for. It suddenly happened last year with the rice shortage that coincided with the unexpected increase of oil prices and the impact of the excise taxes bumping up our inflation rate to a high of 6.7 percent, which in turn cranked up the threat of a possible vicious cycle descending upon us.

Right now, what are the imminent headwinds that could derail our flight plan?
The US-China trade war and its dampening effects on global growth is definitely a major concern. Another is the US-Iran nuclear program standoff and seizure by Iran of a British tanker that could potentially escalate into a military confrontation, the impact of which will be immediately felt by us in the inevitable oil price increases that will surely ensue.

Domestically, the political noise from the opposition regarding China does not seem to be taking a significant hold on the sentiment of the public as the recent elections and surveys have affirmed the popularity of the Duterte administration. However, the tax reform program particularly the Trabaho bill is encountering some headwinds as the affected industries have raised the alarm for a possible withdrawal from the country.

Another headwind that has not received much attention is the decaying educational standard of our country. In a recent FINEX (Financial Executives Institute of the Philippines) general membership meeting, prominent businessman Fernando Zobel de Ayala noted that 65 percent of fresh graduates lack employable skills.

But to end on a positive note, another potential headwind threat, Federalism and its adverse impact on government’s fiscal standing, has apparently abated with the recent pronouncement of the President during the last SoNA that this issue will likely have to be tackled by the next President of the Republic.

Until next week… one big fight!

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