HURRAH FOR THE PHL ECONOMY, FOR NOW
The Philippine Star
01/31/2017

It was interesting watching all those beauty title holders from various countries gushing their praises about the many places in Philippines, particularly Baguio, Boracay, and Cebu, that they visited during their pre-pageant stay, all the local food that they ate, and the hospitality of Filipinos.

I just wish some of them had looked genuinely impressed and did not seem to be reciting from some memorized lines that their respective handlers or the Miss Universe organizers had dished out.

Congratulations to Miss France Iris Mittenaere for winning the coveted title, and let’s hope that all the pageantry of the last weeks would translate to more tourists being enticed to book a flight to and staying for a long vacation in the Philippines.

Miss Philippines Maxine Medina may not have made it to the Top 3 ranking (she was in the Top 6, though), but her country made it to the list of Asia’s fastest growing economies in 2016, and even chalked its fastest growth in the last three years.

With a gross domestic product (GDP) posting of 6.8 percent, the Philippines led the pack of big league winners in Asia last year, which included China with 6.7 percent, and Vietnam with 6.2 percent. India still has to come up with its figures.

There may be some ominous dark clouds in the horizon that threaten this current economic bullishness, which will be discussed in the latter part of this column, but for now, how the Philippine economy fared in 2016 is certainly something worth celebrating.


Fundamental changes coming?

The Philippine Statistics Authority, which released the 2016 growth figures, placed the fourth quarter GDP growth at 6.6 percent, the slowest during the year, but still higher than 2015’s fourth quarter performance.

With the first three quarters on higher levels (6.9 percent in the first quarter, 7 percent in the second quarter, and a revised 7 percent in the third quarter), the unsettling fourth quarter economic performance, while still deemed as a solid gain, was easily swept under the rug and glossed over in favor of the cumulative whole-year totals.

The big question now is whether the reasons stated for the lower fourth quarter performance would continue into 2017, and therefore affect the still-bullish 6.5 to 7.5 percent economic growth projection by government planners.

The government attributed the lower fourth quarter growth to a slowing down in manufacturing activities and the continued drop in agricultural productivity – these in spite of the 4.1 and the 4.6 percentage points contributions of the services sector and household consumption, respectively.


New realities in global trade

Many new risks have been seen, including a shift in U.S. policies that could adversely affect global trade and even the current robustness of the Philippine business process outsourcing sector. America under President Donald Trump does seem to be headed towards more protectionism.

The creeping crude oil price escalation resulting from the world’s biggest oil producers agreeing on setting production quotas could also stoke up inflation. During the last quarter of 2016, this was already apparent in the local economy as prices of basic commodities saw an upward movement.

For this year, the International Monetary Fund is already forecasting inflation to increase to 3.4 percent, a noticeable jump from the 2.3 percent that was seen in October last year.


Weakening peso

An optimistic America is also causing the U.S. dollar to strengthen, adversely affecting the Philippine peso despite the strong and sound financial controls and policies that our monetary officials continue to espouse.

The peso depreciated by almost 3 percent against the dollar in the fourth quarter of the year, immediately causing increases in the prices of imported commodities and services. Of course, this was good news for our countrymen who depend on remittances or export earnings.

News of more increases in the U.S. Federal Reserve’s benchmark interest rates also contributed to bringing the Philippine peso, and currencies of many other developing markets, to a weaker position.

Of course, the Philippines continues to face its usual risks: natural disasters that always take on harsh toll on life and property – and dent productivity in the areas hard hit for extended periods of time until normalcy and full recovery is achieved.


Potential risks amidst Duterte magic

The vaunted Duterte magic may still be very much a solid driving force in keeping the Philippine economy going on its upward trajectory, but it doesn’t hurt to keep our eyes and ears open for potential risks that may derail the gains accomplished in the last two decades.

There’s a lot of work that needs to be done, especially now that President Duterte’s campaign pledges to decrease personal and corporate income taxes have been quantified and delivered, but with no approved plan yet on how this will be financed.

Finance chief Carlos Dominguez must be feeling exasperated by now as lawmakers continued to shoot down components of the proposed restructuring of the country’s taxation system, which includes additional taxes on oil products, new automobiles, and scrapping of the value added tax on senior citizen discounts.

Duterte’s magic somehow seems to be powerless inside the halls of Congress. New or additional taxes are integral to sustaining the proposed Philippine Development Plan (PDP) that has been titled “AmBisyon Natin 2040,” a 25-year vision planning submitted by the National Economic Development Authority.

As Dominguez says, if there are no new taxes that will cover for the lost revenues from income tax exemptions, funds for infrastructure projects will be the first to be affected. And we all know that this can be fatal to an emerging economy like ours.

We might as well retitle the long term PDP into something less ambitious. Any ideas?


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