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Editorial

Global headwinds

/ 05:08 AM October 08, 2018

Last Sept. 19, the local stock market slipped into bear territory on escalated local inflation jitters in the aftermath of Typhoon “Ompong.”

By then, stocks had already been battered by fears arising from the US-China trade war, rising oil prices and a weakening peso.

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The local stock barometer — the Philippine Stock Exchange Index or PSEi — had slid by 1,857.14 points or 20.4 percent from its all-time high last January.

A decline of 20 percent or more from a record high over at least two months is considered an entry into the bear market, or a
period of consistently falling prices of securities. It’s the opposite of a bull market.

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The latest Consumer Expectation Report by the Bangko Sentral ng Pilipinas (BSP), meanwhile, showed consumer confidence in the economy dipping to negative territory at -7.1 percent during the third quarter, as prices of basic goods and services surged in 2018.

This followed eight quarters of positive consumer expectations.

The three major multilateral lending agencies — the World Bank, the International Monetary Fund and the Asian Development Bank — have, in the past few weeks, lowered their 2018 economic growth projections for the Philippines and other countries that are expected to be affected the most by recent global developments.

Locally, inflation has been the biggest problem.

It’s true that the government had been trying to reverse the path of inflation back to the original target of 2-4 percent for 2018. However, events beyond its control — the typhoon’s damage to agricultural crops, for instance — made it more difficult to bring down prices.

It may take a while for inflation to slow down.

Economists expect the impact of monetary measures being undertaken by the BSP (mainly raising interest rates to curb consumption by discouraging people to borrow and spend these on cars and other consumer items), and nonmonetary measures such as lifting restrictions on the importation of rice and other food items, to begin showing results by 2019 yet.

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What can the country do to avert what is increasingly shaping up to be an economic slowdown?

Sadly, there isn’t much at this point. The biggest factors that are causing it are beyond the Philippines’ control — the escalating trade war between the United States and China, the still-rising dollar and surging crude oil prices.

The US-China trade conflict has seen President Donald Trump’s administration imposing duties on billions of dollars’ worth of imports from China, which has retaliated by imposing similar levies on US products entering the mainland.

With the United States threatening to include Japan in the trade dispute, the row will now involve three of the Philippines’ major trading partners. Government officials have indicated that such escalation could cut the country’s exports and even make imports more expensive.

The strengthening of the dollar, on the other hand, has resulted in large outflows of global funds from emerging markets like the Philippines.

The US economy is picking up, so funds that came to Asia over the past decade because of the weak American economy are now heading back West.

Increased demand for the greenback will correspondingly weaken the local currency. Since January, an estimated $1.62 billion invested by foreigners in the local stock market has left the country.

Global oil prices have risen to four-year highs above $85 a barrel so far this year. In turn, local pump prices of gasoline and other petroleum products have jumped to their 2009 levels, when crude oil cost rose to unprecedented highs above $100 a barrel.

The Philippines imports nearly all of its oil needs. The consensus forecast is that crude prices will stay elevated until early next year.

What the Duterte administration can do at this point is to immediately undertake mitigating measures to help the poorest of the poor cope with the rising prices of food and other basic necessities.

It also needs to ensure that ordinary Filipinos will not have the added burden of unnecessary or exorbitant increases in the prices of such services as electricity and transportation.

Vigilance against profiteers would go some way in easing the economic squeeze.

Other than these, it appears that all the country can do at this time on the economic front is to hunker down, and wait for global conditions to turn for the better.

Inquirer calls for support for the victims of typhoon Ompong

Responding to appeals for help, the Philippine Daily Inquirer is extending its relief to victims of the recent typhoon Ompong.

Cash donations may be deposited in the Inquirer Foundation Corp. Banco De Oro (BDO) Current Account No: 007960018860 and Swift Code: BNORPHMM.

Inquiries may be addressed to Inquirer’s Corporate Affairs office through Connie Kalagayan at 897-4426, ckalagayan@inquirer.com.ph and Bianca Kasilag-Macahilig at 897-8808 local 352, bkasilag@inquirer.com.ph.

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TAGS: consumer confidence, Inquirer editorial, Philippine stock exchange, PSE, Typhoon Mangkhut, Typhoon Ompong
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