by Roderick T. dela Cruz
THE International Monetary Fund has upgraded its 2010 growth forecast for the Philippines for the second time this year, and to 7.0 percent from its previous estimates of 6.0 percent and 3.6 percent, as the Southeast Asian economy rides the crest of a regional growth wave.
“The four major Association of Southeast Asian economies [including the Philippines] have benefited from the strong regional upswing, particularly those exporting commodities and electronics,” the IMF said in its latest World Economic Outlook released Wednesday.
“Overall, near-term growth for the region is projected to be underpinned both by exports and domestic demand.”
The Fund’s 2010 growth forecast for the Philippines is higher than the 6.2-percent growth estimate of the Asian Development Bank, Economist Intelligence Unit and DBS Group, but a tad lower than the 8-percent projection made by British Investment bank Barclays Capital.
The World Bank has yet to announce its latest growth outlook for the Philippines after making a 4.4-percent growth forecast in June.
Economic growth in the Philippines accelerated to 7.9 percent in the first half of 2010, but the government has stood by its 5- to 6-percent growth target for the whole year.
The IMF also revised its growth forecast for the Philippines to 4.5 percent from 4.0 percent for 2011.
The Fund sees Asia growing 7.9 percent in 2010 following a 3.6-percent growth in 2009. China is expected to expand by 10.5 percent this year, India by 9.7 percent, Japan by 2.8 percent, Australia by 3.0 percent, Korea by 6.1 percent, Taiwan by 9.3 percent, Hong Kong by 6.0 percent, Singapore by 15.0 percent, Indonesia by 6.0 percent, Thailand by 7.5 percent, Malaysia by 6.7 percent, and Vietnam by 6.5 percent.
The Fund sees inflation in the Philippines picking up to 4.5 percent in 2010 from 3.2 percent last year, and to 4.0 percent next year.
The current account surplus is expected to amount to 4.1 percent of the gross domestic product in 2010 and 3.4 percent of GDP in 2011, and against 5.3 percent of GDP in 2009.
The Fund sees unemployment in the Philippines easing to 7.2 percent of the labor force in 2010 and 2011 from 7.5 percent in 2009.
The IMF said the global economic recovery was proceeding broadly as expected, but the downside risks remained high.
“Most advanced economies and a few emerging economies still face large adjustments. Their recoveries are proceeding at a sluggish pace, and high unemployment poses major social challenges,” the IMF said.
The Fund said the global economy expanded by 5.25 percent in the first half as the surge in inventory and fixed investment accounted for a dramatic rise in manufacturing and global trade.
But it said the global recovery remained fragile because strong policies to foster internal re-balancing of demand from public to private sources and external re-balancing from deficit to surplus economies were not yet in place.
“Global activity is forecast to expand by 4.8 percent in 2010 and 4.2 percent in 2011, broadly in line with earlier expectations, and downside risks continue to predominate,” the Fund said.
Thursday, 7 October 2010
by Roderick T. dela Cruz
Outside the Box
Events over the last two days have accelerated past forecasts about the death of the US dollar, in particular, and major currencies, in general, and the skyrocketing price rise of dollar- denominated assets, including stocks and commodities. Further, the capital flight out of major currencies will see capital inflows to countries like the Philippines speed up.
As I have written in the past, the US has decided that the only short-term solution to its debt disaster is to inflate the money supply and, therefore, devalue the dollar. The global financial markets are 100-percent convinced that the world’s monetary authorities and central banks are intent on ruining, debasing and destroying the value of their currencies. To quote from jsmineset.com: “It does not take a degree in rocket science to understand that paper currencies are under assault by their own governments which seem determined to plunder the wealth of their citizens in the process.” Truer words were never spoken.
The trigger for gold reaching $1,340+ per ounce and the euro hitting $1.36 (from a September 9 figure of $1.26) was the Bank of Japan’s (BOJ) decision to lower interest rates to zero and announced a ¥5-trillion ($60-billion) infusion into the economy. Japan’s exports are getting killed by the weak dollar. Market watchers thought that Japan might move to weaken the yen but instead, it appears to have surrendered to the US money-printing presses and instead intend to do all it can to stimulate domestic consumption since its exports markets are dying due to the weak dollar and the weak Chinese renminbi. Of course, that policy has not worked for 20 years in its domestic markets, but who knows? Maybe Japan’s central bankers are due for a miracle.
The likelihood is that, similar to the situation with the euro, the foreign- exchange markets will ruthlessly take the yen higher, with the result that the dollar will fall at a faster rate than we have recently seen.
Wars have been fought over less than what the US has done to Europe in the past month. The euro appreciated 8 percent against the dollar. That would be like the peso going from 45 to 41.40 in the same period. With the Chinese refusing to “upvalue” and the dollar devaluing, Europe has no chance of economic recovery unless they, too, do whatever they can to cheapen the euro.
It is no surprise that members of Obama’s economic team are rapidly resigning like rats leaving the sinking ship.
The dying dollar is raising prices for all commodities at an astounding rate. Oil has broken $80 and easily could reach $100 sooner rather than later. The Continuous Commodity Index, the broadest measure of prices, is following the dollar up nearly 8 percent in September and 17 percent since June. That is hugely inflationary for the US, and will kill any glimmer of economic growth.
Aside from commodities, including gold, where is money moving to? As I said before, into all hard assets (witness the explosion of nearly 200 points in New York on Tuesday night) and to countries like the Philippines.
Bear this important fact in mind, though: in real terms (like compared to gold), stock prices are literally flat. Not so with the Philippines which, incidentally, sits on a literal mountain of gold.
As the result of the US policy of dollar-value destruction becomes clearer day by day, even now the Bangko Sentral (BSP) is preparing the nation for the reality of the necessity of peso appreciation. It must happen for all the reasons I have mentioned over the last year. From the Inquirer: Finance Secretary Cesar Purisima explained “that as the peso strengthens, so do the currencies of other exporting countries. This, he said, would not significantly harm the competitiveness of the local export sector.” He is correct. However, the part missing from his statement was, “Don’t worry about the US, it isn’t going to have any money to buy anything with, anyway.”
An appreciating peso will keep the price of imported items stable, and that is very important. While the exporters whine and complain about an appreciating peso, neither can they afford to see the foreign component of the goods go higher if the peso fails to appreciate.
There is yet another aspect of the current global currency situation that no one has really noticed or at least talked about very much with regard to the Philippines.
The results of the global financial events that have unfolded over the last two years are not going to go away any time soon. In fact, the consequences are going to stretch into the future. The net result is going to be a reduction in the standard of living in many “developed” countries, all with aging populations or populations where a significant number are reaching their nonincome-producing years. Standards of living are lowering each day. As more people reach retirement age, they will look for alternatives.
Given a choice between staying where the banking system will continue to be problematic, where economic/social unrest may become a reality, and where the purchasing power of money may continue to shrink, or going someplace else, what might people do? From the Australian Cairns Post: “Some Third-World countries are advancing, while some First-World countries like New Zealand are going backward.”
Nearly a quarter of a million Britons leave the United Kingdom every year to live in other countries.
The Philippines has talked about the possibility of becoming a global retirement destination. I think now that idea is becoming more a probability than a maybe. Someone in authority should be looking very closely at what the Philippines needs to do to attract this business similar to what was done in the private and public sector regarding outsourcing.
As I have said so many times before and as the reality of our economic numbers is validating, the Philippines can take advantage of the global circumstances. We just need to think ahead and plan wisely.
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