Business World IntrospectiveIntrospective Romeo L. Bernardo
Posted on December 12, 2016
I’m sharing with readers our macroeconomic forecast for the full 2016, 2017, 2018 with a short summary, below.
My co-author Christine Tang and I do this for GlobalSource Partners, a New York-based network of independent analysts (see globalsourcepartners.com). Its clients are mostly international banks and fund managers, thus the focus on macro and financial statistics.
That seems to be the key takeaway from President Rodrigo Duterte’s first four months in office.
After all, nobody would have expected in July that he would so dramatically upend the country’s foreign policy nor the extent he would go to attain his zero-tolerance drug policy. In fact, we now see and hear to word “uncertainty” used again and again to describe the business environment, referring to the unmeasurable unknown unknowns. And with the election of Donald Trump in the US, even more are wondering whether the times are changing and what that means for the local economy.
We think that a clinical analysis of the current state of affairs would continue to support our basic view of favorable short-term economic prospects.
We continue to think that: (a) the President has empowered his economic team and is unlikely to override its orthodox policies; (b) despite external risks, domestic demand drivers, particularly remittance and BPO-supported consumption, remain intact and will provide base support for growth, and; (c) government, backed by a strong balance sheet, has ample monetary and fiscal policy room to smooth out temporary shocks, particularly from an imminent US policy rate hike.
That said, our unease has grown after observing the President’s decision-making habits, which do not appear to benefit fully from consultations with his cabinet or wider stakeholders.
His capacity to create policy shocks on his own and his seemingly narrow focus on a handful of issues (mainly drugs, peace, security) translate into higher political risk that may adversely impact economic policy. The more immediate of which are the executive’s proposed tax reform package, still not yet filed in Congress, and the sought-for emergency powers for solving traffic congestion. It is also unclear whether and how the President’s own preferences would factor into resolving policy differences in areas where economics intersects with sector departments manned by crusaders, whose policy prescriptions may do more harm than good.
The perceived unpredictability of the policy environment is bound to affect business sentiments and keep investors in wait-and-see mode. This stance has already been observed among those desiring more clarity in labor contracting, land conversion, and mining policies that are presently under review, as well as westerners sensitive to human rights issues.
I have learned of cancellations in the industrial estate and BPO space. The BSP’s business confidence index numbers have dropped of late to the lowest level since 2011. The one concern cited was foreign policy. Uncertainties on the external front, related to a Trump presidency and their impact on the growing trend towards protectionism globally, will be an added concern.
For now, we expect the economy’s strong momentum to propel GDP growth to 7% in 2016 and solid economic fundamentals to keep it at an average 6.5% in 2017-2018. The forecasts are anchored mainly on improved public sector delivery of spending priorities, especially infrastructure, with over or under performance on this aspect forming the basis for any upside or downside in the growth rates.
Downside risks dominate, in our view, and will be magnified if long-term investors, fearing unmanageable internal and external risks, decided to scale down or abandon investment plans.
While this, by itself may not affect short-term growth much, effects can multiply over the medium term, including in the BPO industry, already facing challenges from evolving labor-saving technological options.
Upsides may be enhanced by improved trade and investment links with China.
However, given the tentativeness of the agreements and media scrutiny of the a) the checkered past of some of the Chinese companies and b) unhappy ending of two highly visible China ODA funded projects, the reported billions of Chinese investments will take time to materialize.
We are more optimistic on immediate benefits on tourism, coming from a low base vs. our neighbors. And from agricultural exports, starting with the recent lifting of “phyto-sanitary standards” on mango exports.
romeo.lopez.bernardo@gmail.com
