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HSBC
chief economist Frederic Neumann is back in town and has
been talking to the bank’s favorite clients and key
personnel. Basically, he talked about the Philippines
and the rest of the world.
First,
here’s what he has to say about the Philippines:
• The
Philippines has “turned the corner.” It was a totally
different scenario six or seven years ago, which was
about the time President Gloria Macapagal-Arroyo started
her term.
• The
improved economy can be traced to “macroeconomic
stability,” manifested, on the one hand, by the
narrowing budgetary deficit and, on the other hand, by
the “operational independence” of the Bangko Sentral ng
Pilipinas (BSP). Another factor is the continued
increase in remittances from overseas workers.
• In a
sense, President Macapagal-Arroyo is a “victim of her
own economic success,” manifested by higher inflationary
growth (read: people are spending more).
• The
peso-dollar rate will stabilize at current rates despite
the weakening dollar because of inflation (read: this
year’s inflation target is within the 3 percent to
5-percent range but is currently at 6 percent.
•
Because inflation is domestically generated (read: food,
for example, which accounts for 55 percent of the
consumer price index, is a “domestic problem” rather
than an import problem), the BSP has to be “more
hawkish” or tighten up. Otherwise, there is the risk of
secondary effects such as the risk of workers asking for
higher wages that can further lift interest rates.
• The
country currently has a negative real-interest rate
(nominal interest rate minus inflation). One indicator
is the rise in food price. (Another is the drop in
interest rates of savings accounts to less than 1
percent).
• Even
though government’s rice subsidy this year will increase
the budget deficit by P6 billion to P7 billion,
international ratings agencies will not take this
against the country. What the ratings agencies are
really looking at is the debt-to-gross domestic product
ratio, which is going strong.
As for
the rest of the world, particularly the United States,
here’s what Neumann has to say:
• The US
is in recession. This is not based on the traditional
definition of two quarters of negative growth but on the
economist’s definition where major sectors of the
economy have shown negative growth.
• If the
early 2000s was characterized by the IT bubble and today
is characterized by the subprime meltdown, the next
bubble involves commodities and that’s going to happen
in five or six years’ time. Right now,
China,
India, Russia, and Brazil consume as much commodities as
the United States and are, as a group, expected to
exceed the
US
in the coming years.
• The
spike in the price of Thai rice, a regional benchmark,
happened only in the last two months. Meanwhile, the
stocks-to-consumption ratio of rice has been steady for
the past four years. The only conclusion here is there
is hoarding and misdistribution.
****
Did you
know 1:
A delegation from an Australia-based manufacturing
association is here to hire welders-fabricators, pipe
welders, and boiler makers.
If
hired, these guys will be issued work permits of up to
three years with the option to apply for immigrant
status after a year’s residency.
Did you
know 2:
With 20,000 workers needed in Guam next year, the
Philippine Overseas Employment Administration is
seriously thinking of a “no placement fee” policy for
participating recruitment agencies.
As
everybody knows, the
United States
will be relocating a large portion of its huge military
base in Okinawa, Japan to, uhm, definitely more friendly
territory. This means construction workers are needed to
build base facilities and homes for military personnel.
The estimated cost of construction over four years is
$13 billion. |
