Cloudy crystal balls

With the January 2020 update of its World Economic Outlook, the International Monetary Fund (IMF) officially downgraded its original global economic growth forecast for 2019 for the sixth time in as many quarters. From its original bullish forecast of 3.9 percent for 2019 global GDP growth issued in early 2018, IMF had lowered this to 3.7 percent by October 2018, to 3.5 percent by the start of last year, further down to 3.3 percent in April, 3.2 percent by July and 3.0 percent by October. Now they say it will be only 2.9 percent, a full percentage point below their original forecast — and the jury is still out. It won’t be until April when the actual final figure based on complete 2019 data will come out. If it’s any indication, the final growth figure for 2018 released in April 2019 ended up still lower than their last revised projection in January 2019.

Casual onlookers could easily lose faith in economists’ forecasts, seeing how the otherwise authoritative institution’s crystal ball seemed to be cloudy and unreliable this past year, prompting a changing forecast with every passing quarter. To be fair, unexpected events in 2019 gave even the best-equipped economists a hard time projecting economic growth. The IMF blamed the repetitive downscaling of growth projections on the unpredictability of the US-China trade war, with each move and countermove of the protagonists, hence their global economic implications, extremely difficult to anticipate. In the first place, US President Donald Trump was never guided by solid economic reasoning in waging the war, so economists were not the best predictors of his successive moves in the high-stakes gambit with China.

Americans are far from alone in the unpredictability of their leader and surprise moves he can make with potentially drastic economic consequences, positive or negative. On our side of the ocean, we have a President whose words and actions often also appear to defy logic, while having potentially strong impacts on business and the economy. Misplaced verbal attacks against certain business entities, and threats to retaliate with far-reaching measures for the cancellation of one favored senator’s US visa, are just two recent examples that cloud many an economic forecaster’s crystal ball.

But then again, economic forecasting has never been an exact science. Predicting economic outcomes, especially numbers for economic variables like GDP growth and inflation and unemployment rates, is often little more than educated guesswork. Now, at the start of the year 2020 — ironically a number that connotes clarity of vision — the outlook for the economy is anything but clear, even to the most seasoned economist.

We in the Philippines, in particular, are off to a bad start, having already been buffeted in the first month alone by a succession of external and internal negative events that will exert a drag on the economy in the year ahead: new volatilities in the Middle East triggered by the US assassination of a top Iran military leader, the spread of the novel coronavirus, the final sealing of Brexit, the eruption of Taal volcano, and President Duterte’s chilling diatribes against certain large business entities. There will surely be more as the year unfolds. The magnitude of economic impact of each taken alone is impossible to predict with any accuracy; what more when one considers that interactive forces across the various effects could compound their combined impacts.

What could provide the offsetting upside to the economy in 2020 and beyond? Foremost would be government’s ambitious infrastructure push, to the extent that earlier implementation bottlenecks experienced could finally be overcome. But there remains much uncertainty on this, due to emerging limitations in human and physical resources (e.g., availability of construction materials like cement and steel, and of engineering equipment) so vital to its execution.

What’s in store, then, for the Philippine economy in 2020? I and any economist could give best educated guesses on the numbers for the key indicators. But with the IMF’s own experience last year, I doubt anyone would be willing to bet on them.

[[email protected]]