Strong economy amid political risks

Zoilo ‘Bingo’ Dejaresco IIIThe economy grew by 7.1 percent in the third quarter, making the Philippines the fastest-growing economy in Asia. China only grew by 6.7 percent and Vietnam by 6.4 percent.

This was the 71st consecutive quarter that the economy reported positive growth. (During the same quarter, per-capita income grew by 5.3 percent net of population growth).

The United Kingdom think tank, Capital Economics, however, cautioned that while our fundamentals are sound, “political developments in the US and the Philippines make the outlook uncertain.”

The Aquino era had good marks in both GDP growth and six years of political stability.

It is a pity since barring a political conflagration, the Philippine economy is seen to grow strongly till 2018. Some jaded forecasters even go as far as saying if the trend continues, the Philippines will be the strongest Asean economy with GDP value of $750 billion, from $300 billion at present, beating Indonesia and the rest by 2026.

Where did the third-quarter growth come from? Consumption (70 percent of economy) continues to drive the economy forward by 7.3 percent, bolstered by $50 billion a year in overseas Filipino worker remittances and business-process outsourcing earnings. Government expenditures ramped up by only 3.1 percent, since most of the nation’s budget had been spent earlier. Investments scaled up by 20 percent

Looked from another angle, services grew by 6.9 percent and industry by 8.6 percent. The surprise was agriculture, a perennial laggard, which rebounded by 2.9 percent compared to a contraction in the same quarter last year.

How will government, consumption and investments (foreign and local) behave from hereon?

There are fears the new tax policies and performance of the government-owned corporations may not be enough to fund the “golden age of infrastructure” being bruited about that ostensibly runs till 2022? Will this be another era of debt-financed growth?

There are legitimate fears that the protectionist policies of the US could adversely affect local consumption, since most BPOs are from America. Will Washington continue to picture the Philippines as a haven for terrorists with the still unchecked activities of the Abu Sayyaf in Sulu area and ruin our tourism image further?

Will trade and investments from China and Russia be able to offset the slippages expected from Manila’s less-than-cordial discourse toward America and the European Union?

There are also specific worries that are relevant to the value of the Philippine peso and the stock market.

From the Aquino era high of 8,000 Philippines Stock Exchange  index, the support level of 7,000 has been breached and doing 6,800—with most prognosis negative moving forward.

Many analysts point to internal Philippine political skirmishes as the bigger factor in the slide. How long will the index hold given that already at 8,000 many Philippine stocks are considered overvalued by global standards?

On the other hand, from an exchange rate of 44 per US dollar, the peso is now at 49.50 to 50. Independent forecasters expect the exchange rate to hit 50 per dollar by the end of the year and at 50 to 51.50 next year.

A significant reason for this is the recovery of the American economy and the feared increase in US interest rates by the US Fed. Will our own Bangko Sentral ng Pilipinas intervene by adjusting the policy rates? Is that good for the local borrowing companies and consumers?

President Duterte will be well advised if both the political generals and the economic gurus meet soon and execute a game plan so they all paddle in the same direction.

Such a pity if we allow political discord to disrupt the country’s growth trajectory and forfeit the benefits this brings to 103.5 million Filipinos.


 Bingo Dejaresco, a former banker, is a financial consultant, media practitioner and political strategist. He is a life member of Finex but his views here are personal and do not necessarily reflect those of Finex.



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