EVENTS that have recently unfolded during the first week of this New Year seem to foreshadow rough sailing ahead for many emerging economies in 2016. The sudden drop of the Shanghai Stock Market and the Saudi-Iran tension have clearly shaken global financial markets
Closer to home, politics is taking center stage as the election season goes full blast. The combination of external and internal factors is making many stakeholders anxious about the sustainability of the current Philippine growth.
It’s already a known fact that the Philippine economy has broken through its 40-year growth average to its current above-5-percent trend. Will these factors put a cap on the higher growth path yet again?
Answers to this question aren’t simple, and these will be placed squarely on the shoulders of the next national and local leaders who will be taking charge starting July. This reminds us, Filipino voters, of the need to carefully understand the direction of the Philippine economy in the next six years.
We should be concerned about how the different candidates perceive current challenges and what their responses are likely to be. Moreover, candidates, whether national or local, should clearly prioritize issues that need to be tackled this year.
From our perspective here at Eagle Watch, there are at least three “must-dos” that the incoming administration should immediately address to sustain economic growth. These are international finance, global climate change and the Metro Manila traffic. Let us discuss these in turn.
International financial landscape
AMONG the contributing factors to Philippine growth in the last five years have been the low interest rate regime and quantitative easing in many developed countries. These have resulted in movement of financial resources to our economy, whether as portfolio or direct investments. This condition has now changed significantly.
The United States has already increased interest rates and may continue to increase them further. Meanwhile, China has been exhibiting declining growth, which has led to expectations of weaker global demand, primarily for oil.
The recent Saudi-Iran debacle and the continued fall in oil prices are causing concerns that overseas Filipino workers’ (OFW) remittances may fall way below expectations. For the Philippines, this could shake the major engine of growth over the last 10 years.
Climate change
WEATHER forecasters from all over the world have already warned that the current episode of El NiĖo could be the worst. It could lead to longer droughts, as well as fewer but more destructive typhoons.
These warnings do not augur well for the sustainability of economic growth. Although agriculture has already lagged behind significantly in terms of contribution to GDP, a huge El NiĖo might further weaken this languishing sector.
There are two negative implications. First, falling output in agriculture will not improve the poverty scenario. Most of the poor Filipinos are employed in this sector. Second, food prices could sharply rise and, thus, pull inflation and possibly interest rates.
Metro Manila traffic
IT is critically important to resolve the Metro Manila traffic as soon as possible. Forty percent of Philippine GDP is generated in the capital, which is the gateway to all other economic-growth engines, such as the tourism and business-process outsourcing (BPO) sectors.
As it is, the national government continues to treat this challenge as a local and segmented issue. It remains lacking in pushing for a long-term and strong-hand solution to a problem that is causing significant losses of productivity and efficiency to the whole economy.
These three challenges have disastrous proportions, and so those who are running must have very clear strategies on how to respond to them immediately. They are surely posing serious risks not only to growth sustainability, but to the overall capacity of the economy. Their combined potential negative impacts could further worsen the already stubborn level of poverty and exacerbate inequality.
A quick look at the pronouncements of the national candidates show they focused mostly on the usual challenges of jobs, poverty, agriculture and corruption. There is more to be desired, considering that the country is not growing out of isolation. It would be good to bring these challenges to the core of their economic agenda.
In particular, we can demand from the candidates a clear action plan on the following: 1) declining OFW remittances and the impact of lower oil prices on OFW job security; 2) potentially higher inflation due to higher food prices; and 3) lower supply of water and power, among others. Indeed, it is necessary for the next leaders of this country to understand external issues in order to predict their impact on domestic affairs.
We would like to invite you to our First Quarter Macroeconomic Briefing to be held on February 4 at the Ateneo Rockwell Campus from 9:30 to 11:30 a.m. For reservations, please contact 4265661 or e-mail eaglewatch.soss@ateneo.edu