By: Zoilo "Bingo" P. Dejaresco III
BUSINESS MIRROR(FINEX Free Enterprise)
April 19, 2017
A balanced view of the economy
Finex Free Enterprise is a rotating column of members of the Financial Executives Institute of the Philippines appearing every Wednesday & Friday in BusinessMirror, banking & finance Section.
The first Finex economic briefing at a five-star hotel recently displayed a fairly moderate assessment of the Philippine economy.
External risks considered the condition of the United States being the world’s foremost industrialized nation and one of the lead trading partners of the country.
The Federal Reserve has raised interest rates amid a rise in property prices. America is currently enjoying one of the highest consumer confidence levels since 2000 and its labor sector is nearing full employment. This is counterbalanced only by the protectionist and insular mind-set of its president.
The European Union’s (EU) future is as clear as mud, with individual nations facing political and financial risks. Article 50 is a risk that could delay the full exit of Britain from the EU for another two years.
But Philippine relations with the EU is not major, unlike anemic Japan, whose immediate future can be bolstered by a strong dollar giving impetus to its exports, which is a major Japanese strength.
China, meanwhile, has maintained moderate growth and has opted for stability rather than expansion in the face of mounting debt. China’s performance in 2017 will induce hiccups to many (including the Philippines) being the second-biggest economy on the planet.
The Asean, for as long as it finally moves toward regional competitiveness and integration, will be good for the country. Most countries in the region have strong domestic demand and can be a ripe target for Philippine products.
On the other hand, the greatest geopolitical risks remain centered on the continuing belligerence of North Korea as a “nuclear brat” and the continuing tug of war at the South China Sea.
For internal indicators, the Asian Development Bank is looking at a 6.4-percent GDP growth in 2017. Those who anticipate higher growth rates project a wholesale adoption of the proposed Comprehensive Tax Reform Program.
The latter will help bring about P200 billion in consumer spending and revenues of another P400 billion for the government. This is key to financing the infrastructure buildup that, at 5.3 percent of GDP in 2016, is expected dramatically to rise to over 7 percent of GDP from 2019 to 2022.
Such spending is aimed at attracting more foreign direct investments that is sorely lacking. The next few years is expected to witness rising inflation reaching 3 percent by 2018. Inflation at this level will help determine the Central Bank’s monetary-policy stance. A moderate rise in interest rate, therefore, is in the horizon. A P50- to P51-per- dollar exchange rate is, likewise, foreseen. On the downside will be the slide in the current account ratio-to- GDP in the coming years.
Likewise, from the third quarter of 2016 to the first quarter of 2017, the nation saw a stock market generally characterized by slow growth and expensive valuations and slowing business confidence.
The stock-market index hitting 6,600 signals buying opportunities, while the index at 8,500 is not within range in the very near term.
The long-term outlook is more favorable. The combination of government policies is expected to reduce poverty in the country, from 22 percent in 2016 to only 16 percent by the year 2016. There, a truly middle class will be formed and signals the true economic liberation for Filipinos.
Moreover, unlike China and Japan, the Philippines has a young population. Those aged 0 to 14 constitute 40 percent of the 103 million Filipinos.
We are also in a demographic “sweet spot”, where our consumption activities only serve to attract investors and merchants to the country. As the writer Henry S. Dent Jr. said in assessing the great bubble burst in 2017-2019, it is the population, and not the government, that determines the economic future of a country.
Bingo Dejaresco, a former banker, is a financial consultant and media practitioner. A life member, he is also the chairman of The Professional Development and Broadcast Media of Finex. His views here, however, are personal and do not necessarily reflect those of Finex.
http://www.businessmirror.com.ph/a-balanced- view-of- the-economy/