DANGERS SIGNS FOR RP IN 2016

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DANGERS SIGNS FOR RP IN 2016

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cartoon editorialPRESIDENTIAL ELECTION YEARS  like 2016 always have an impact on the Philippine economy. Elect a bad president- and everything is downhill; a good one- the economy soars.

We hanker back to what the economist -president Gloria M Arroyo theorized: RP will only feel the benefits of GDP growth only if GDP grows by 7% for 7 consecutive years.

True enough- while RP enjoyed high growth rates of above 6% in the 5 Aquino Years- that is not quite 7% -and 5 is  not 7 years. Thus we have lack of inclusive growth yet-mathematically, GMA is, therefore,  correct.

One way of measuring GDP is via Consumption, Government Spending and Investment levels.

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Good local corporate results, OFW and BPO monies take care of Consumption. Government has been in an all-time high National Budgets- buttressed by sound fiscal revenues.  It is in Investment where RP lags- and this is because we have not attracted the big-ticket foreign direct investments for a number of reasons.

Assuming we elect a good president- a reformist, law-abiding and fiscally correct one-there are other external factors that make us look at 2016 with watchful eyes.  Because these can affect the entry of the needed direct foreign funds needed for big-ticket projects (public and private).

One – is the Saudi Arabia and Iran conflict.Recent events like the execution of a prominent cleric in Saudi Arabia and the torching of the latter’s embassy in Tehran had made “hot”- the long-years of Cold War between the two countries.

Any escalation of hatred leading to physical attacks could lead to a gargantuan hike in oil prices due to oil supply disruption. We must remember the two  warring nations belong to  the Big Four in terms of oil reserves: Venezuela, Saudi Arabia, Canada and Iran ( in that order). Today, oil prices are down globally because Saudi has cut production -hoping that  the  low oil prices will kill the shale competitors mostly operating in the USA.

It has succeeded. But if war breaks out- the United Nations must step in quickly to avert a global  financial massacre. We must remember Saudi Arabia is RP’s largest supplier of oil.

Two – is the faltering China economy. The Chinese stock market suffered a second seizure recently. Global investors-  like the big-time George Soros says China is  approaching a crisis level like the 2008 level starting in the USA. Per se , the China stock market may  not be  a big deal since only 4% of its populace invest there and only 2% are foreign players.

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But the stock market crash signifies that the  Chinese manufacturing and other industries are not doing well. That essentially means many nations will get hiccups when China sneezes- since China is the world’s second largest economy and the second largest purchaser of goods and  services.

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It will affect many countries including those where RP has trade relations. RP itself has US$14.6 B in trade transactions with China as of 2013. Its downturn can affect the businesses of Filipinos in China now totaling US$2.75 Billion (2010 figures) in investments there.  The slowdown will  also affect China’s ability to invest in RP which is low at US$125M as of 2010.

Three- the US Federal Rate increase in interest. Since the  2008 crisis- the US Fed kept interest rate almost close to zero to jumpstart the economy in crisis. Now recovered, the Fed decided to slowly increase its interest rates.

The end effect is to attract investors back to the US and affect the Philippine stock market as it has . From a peak of 8.000 level in April, it is now in bear territory of 6.700 and maybe falling.Globally, it will increase the cost of borrowing and affect RP’s cost of foreign debt. Depending on the real outflow of dollars from the country-trade or investment or debt reasons- it could depreciate the Philippines peso now at US$1:P47.

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All the three above and an uncertainty of a real winner in the May polls make -local and foreign investors- step on the brakes in scooting to the Philippines. By June this year- we will have a better picture.

For now – caveat emptor.Buyer,beware.

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For comments: email to dejarescobingo@yahoo.com or bohol-rd@mozcom.com

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