Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery

Economics / Coronavirus Depression Jul 02, 2020 - 01:52 PM GMT

By: Dan_Steinbock

Economics

Recently, the IMF downgraded most growth projections, due to weaker private consumption and elevated uncertainty in investment. Those are the twin engines of the Philippine economy. So, what’s ahead for economic recovery?

As I wrote in a report 2 months ago (click here), the global economic outlook of the International Monetary Fund (April 2020) was too optimistic. Last week, the IMF downgraded most of its projections. Now global growth is projected at -4.9% in 2020, almost 2 percentage points below the previous forecast.

Consumption growth has been downgraded for most economies, due to the larger-than-anticipated disruption to domestic activity. Worse, investment is expected to remain subdued as firms defer capital expenditures amid elevated uncertainty.


If consumption growth has historically been central in the Philippines, while investment has fueled the country’s “Build, Build, Build” infrastructure drive, what’s ahead for economic recovery?

Pandemic liabilities of consumption-led growth

In the Philippines, the impact of the great coronavirus contraction began already in the 1st quarter, when the economy shrank by 0.2% on year-on-year basis.

The effect was dramatic, even though the official number of cases was still relatively low (less than 2,100 versus more than 35,000 today) and nationwide quarantine began to dampen demand only toward the end of the quarter. With plunging international conditions, travel and tourism, retail and transportation took heavy hits.

For years, the conventional wisdom was that economic growth in the Philippines is fueled by consumption. In the West, observers saw the status quo as positive because it supported foreign exports into the country.

Nevertheless, for years, I have been warning that under adverse conditions consumption-reliant economy can prove a severe liability because, without a vibrant domestic manufacturing base, such growth keeps the country under dependency.

When international conditions are positive and global economy thrives, so will Philippine consumption and economy. Unfortunately, the reverse applies as well – and that’s what we have seen in the course of the past few months.

In the 1st quarter, growth in household consumption, which accounts three-fourths of the GDP, fell flat. As the global economy has been frozen, Philippine business, investment and consumer confidence have been impaired as well.

But there’s much worse to come.

1st quarter plunge only prelude to 2nd quarter carnage

As the global coronavirus contraction spread in the first half of the year, the plunge is reflected by the revised Philippine economic outlook.

The fall of both exports and imports was only to be expected following the rapid deterioration in external demand and the disruption of supply chains.

Obviously, months of lockdowns and quarantines around the world have reverberated adversely on the supply side as well. Economic growth has decelerated in all sectors. Growth in services fell four-fifths to 1.4% on a quarterly basis, mainly as net effect of the plunge in transport and accommodation, food services, and trade.

In the past, construction, perhaps even manufacturing, was thriving. Now both fell, as did agriculture.

The current forecast for 2020 has been downgraded to -3.8%. Both household consumption and investment have slowed more than expected. And the contraction in the global economy will continue to drag external trade, tourism and remittances.

Nevertheless, the Asian Development Bank’s (current) forecast for 2021 is maintained at 6.5%, supported by public infrastructure spending and anticipated recovery in consumer and business confidence.

Thanks to its secular economic potential, the Philippines certainly could experience a strong V-shaped recovery. But it will not prove as smooth as currently anticipated. In the global economy, the plunge of the 1st quarter is just a prelude to the massive collateral damage in the 2nd quarter, which is almost over.

In the Philippines, too, new downgrades are likely to reflect the new normal in the coming months.

Hollow “lives vs livelihoods” debates

In the past few months, critics of the Duterte government first downplayed the impending economic damage associated with the coronavirus contraction. When the stance proved flawed, the tactic was reversed. More recently, they have pushed for even longer lockdowns and quarantines, despite prohibitive economic costs.

These debates are not predicated on the recovery of the Philippine economy and the well-being of its citizens. Rather, such debates, which blame the government for the global pandemic, reflect early positioning for the 2022 election – that is, political exploitation of dire economic realities.

In 2019, the budget debacle proved extraordinarily costly because it weakened Philippine output potential right before the global pandemic and the coronavirus contraction. Should they result in real political polarizations, current “lives versus livelihoods” divisions could contribute to a slower than expected recovery.

Today, all economies in Southeast Asia hope to gradually ease lockdowns, quarantines and restrictive measures. Yet, in the Philippines, some argue that the quarantines should continue longer to ensure adequate bending of the epidemic curve. They believe that lives precede livelihoods.

In contrast, others claim that such measures would be foolish because they downplay the adverse economic consequences of the quarantines. They claim that without livelihoods lives will be lost.

In reality, both sides have a point, but neither is right. Without lives, there are no livelihoods. Conversely, without livelihoods, lives will be lost. The challenge is not to choose between one or the other. The challenge is the right and timely balance between the two.

While the recent surges in confirmed cases reflect intensified testing rather than changes in the pandemic status quo, Philippine recovery cannot fully move ahead until the epidemic curve is effectively bending. And the reality is that while the Philippines is getting closer to bending the curve, it hasn’t succeeded yet in per capita terms (Figure).

Figure          Getting closer to bending the curve*

Daily Covid-19 cases per million: ASEAN economies

Source: European CDC, June 27, 2020

Fiscal and monetary flexibility facing stress tests

Obviously, household consumption and investment growth has plunged in the 2nd quarter. But if the pandemic can be kept in check in the coming months and the epidemic curve finally bends, infrastructure investment and household consumption could intensify the hoped-for recovery.

The Duterte government’s infrastructure and fiscal economic changes have lifted the share of investment growth up to 27% of GDP from barely 20% in the Aquino era (2010-16). However, since the government must now allocate more to the struggle against the pandemic, public expenditure and construction outlays will be delayed.

Consequently, now it’s the time to push even harder the infrastructure drive and fiscal economic changes. If this effort proves successful, the growth forecast for the current year is still likely to hover at around -3.5% to -4.5% on a year-to-year basis. But the coming recovery could prove stronger than expected.

In the past months, the Bangko Sentral (BSP) has cut the policy rate by 125 basis points, pushing the benchmark rate down to a record low 2.75% (which is likely to cut closer to 2.0% in the coming months). The reserve requirement ratio (RRR) has been cut down to 12% (with another 200 basis-points reduction likely ahead).

Obviously, the BSP has tried to neutralize the pandemic impact on economic growth.

Recently, lower energy prices and reduced imports have offset the fall in remittances. But since global recovery is likely to prove more challenging than expected, weaker government revenues (and rising deficit) and impending stimulus package (3.1% of GDP) will stress-test fiscal policies in the second half of the year.

Challenging scenarios

If, in addition to the catastrophic consequences of the Trump administration’s failed pandemic policies, the White House willaccelerate its trade wars against China and US allies in Europe and East Asia, global economic headwinds will prove much worse than expected.

In that scenario, the anticipated global recovery would prove subdued in the second half of the year and a multi-year global recession could no longer be excluded, especially as the heavily-indebted advanced economies’ recent and huge debt-taking may result in new debt crises, which could spill over to poorer countries.

Furthermore, such negative scenarios would be reinforced if the development of vaccine and viral therapies will take longer than expected.

In the coming months, the Philippines, like so many other countries, will face the greatest risks (and opportunities) since World War II. Now the margin for error in economic policies and pandemic containment is slim to nil.

Dr. Dan Steinbock is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/  

© 2020 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Dan Steinbock Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules