‘WHOM the gods would destroy, they first make mad” is spoken by Prometheus in Henry Wadsworth Longfellow’s poem “The Masque of Pandora” (1875).
The tone of the 2016 presidential campaign, and perhaps even the outcome, may very well be determined in the next 45 days.
I have been feeling lately like I am sitting next to a guy on the Titanic with a glass of champagne in one hand and wearing a party hat who turns and says, “It’s only a chunk of ice. The ship is unsinkable and everyone in charge knows exactly what they are doing.”
What we are hearing from the government as embodied in the State of the Nation Address (Sona) is like what was probably written in the Titanic’s daily ship newspaper up to the moment it hit the iceberg. The end of September is going to mark a change in trend and an end to the current global economic phase. I was convinced that this would not seriously damage the Philippine economy and that it would even present some good opportunities.
Unfortunately, I was not smart enough to anticipate that the government and the country’s vast political leadership intended to go on a yearlong miting de avance, perhaps complete with champagne and party hats.
But it is not just the political class that has turned off on the economy. When we read newspaper editorials questioning why President Aquino gave his Sona in Filipino rather than English and another titled “The anointing”—a term usually reserved for royalty and religious messiahs—Prometheus may have been right.
By the end of August, the second-quarter economic numbers are supposed to be released. If the Philippine economy has regained at least some of the strength it lost in the last two reports of end-2014 and first quarter 2015, well and good. I will then attribute my pessimism to old age and falling hair.
However, if the gross domestic product (GDP) growth numbers are disappointing, then the announced and prospective presidential candidates would be forced to do something they are not used to doing; presenting a real plan and not just “motherhood statements” to deal with the economy.
The global economy’s negative shift by the end of September that I keep whining about has already started. While it may take months for the Philippine government to put its economic data together, others are not so slow. For the second quarter of 2015, Singapore reported a 4.6-percent quarter-on-quarter economic contraction and a year-on-year growth of a smaller-than-expected 1.7- percent increase versus a forecast for a 2.4-percent rise.
But Singapore is not alone in showing some potentially severe economic problems. The Malaysian ringgit just hit a 17-year low against the US dollar. Brazil is ready to report that it is officially in a recession. That country’s retail sales growth just went negative for the first time since 2003. Japan has shown four quarters of negative quarter-on-quarter growth. Taiwan reported the slowest quarterly growth in three years. South Korea’s second-quarter GDP growth was its worst in over six years.
Russia, Canada, Switzerland, Finland and Indonesia all reported that their economies shrank in the last reporting period. Denmark, Israel, Belgium, Germany, Norway and Austria have reported less than 0.50-percent quarterly growth. These are not countries you usually find in the list of economic losers.
Regardless of what the government may be saying about the continuing strength of the Philippine economy and that the best is yet to come, money is not coming into the country like before. The current account—payment inflows like remittances versus payments going out, like for foreign debt and exports—is positive. But the capital flow is trending lower from its 2013 high of a positive $16 billion and it is accelerating. The current capital flow is a positive $8 billion and was at $10 billion in 2014.
We are seeing this in the massive liquidation of foreign money from the stock market in the last six months and in the peso’s declining exchange rate. Foreign direct investment is at the same amount as in 2011 and in 2007, and is trending lower from the 2012 high.
Even the government admits that public spending is not properly supporting the economy, and we should wait until 2016 for things to really improve. In the meantime, it looks like it is going to be political party time.
****
E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter
@mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.