Rough economic times

Drowned by the publicity on the controversial pork barrel scam last week was the government announcement of another stellar economic growth in the second quarter of 2013. Also overshadowed by that media coverage was the global financial volatility that saw currencies and stocks plunge worldwide.

The Philippine economy grew 7.5 percent for the April-June period, defying a regional slowdown to remain one of the best performing in Asia. This was attributed to a resilient services sector and robust growth in manufacturing and construction. The National Statistical Coordination Board said the second-quarter growth, the fourth consecutive GDP expansion of more than 7 percent under President Aquino, brought the first-half increase to 7.6 percent. This also matched China’s as the Philippines withstood a regional slowdown that has led Thailand, Malaysia and Indonesia to cut growth estimates. Thailand in fact entered a recession while Indonesia’s economy grew less than 6 percent for the first time since 2010.

However, not all is well on the global economic front. Fears of a possible military action by the United States against Syria led global oil prices rising, triggering a slump in stocks and a weakening of currencies in Asian emerging economies, including the Philippines’.

Last Wednesday, the main price barometer Philippine Stock Exchange index lost 178.93 points or 3 percent to close at 5,738.06. It was the lowest for 2013 and was down 1.3 percent from the end-2012 level, giving up as much as 27 percent in gains made earlier this year. Also on Wednesday, the peso closed at 44.75 to $1, the weakest since Sept. 2, 2010, when the local currency settled at 44.95 against the greenback. Elsewhere in the region, the Indonesian rupiah also hit a four-year low while the Malaysian ringgit was at its lowest in more than three years. The Thai baht also slid to a three-year low.

Analysts point to the tension in the Middle East and the planned tapering by the US Federal Reserve Board of its easy monetary policy, an indication that the American economy could be on its way to a recovery, for the volatility in stock and currency markets in Asia. A similar panic among Asian equity markets happened last June after Fed Chair Ben Bernanke talked about his plan to phase out a policy of increasing the money supply in the economy, mainly by buying $85 billion in bonds a month. Part of these funds fueled the surge in Asian stocks.

But despite the recent negative economic events, international debt watcher Standard & Poor’s (S&P) noted that it was unlikely to see a repeat of the 1997 Asian financial crisis that saw economies in the region crashing. In a statement released last week, S&P said emerging countries like the Philippines, which rely on domestic demand to drive economic expansion and enjoy a surplus of foreign exchange earnings, would not be affected. Remittances from overseas Filipino workers (OFWs) have been keeping the Philippine economy afloat for years. In the first quarter of the year, the Philippines also recorded a current-account surplus of $3.44 billion. In contrast, Indonesia had a current-account deficit of $5.27 billion in the first quarter of 2013.

The Asian Development Bank also predicted that the Philippines’ GDP would grow 6 percent this year, describing the local economy as “shining brilliantly” in terms of growth rates, inflation, monetary stability and the boost from the billions of dollars remitted by some 10 million OFWs.

The Asean Business Outlook Survey 2014, the key barometer of US business sentiment in Southeast Asia, has likewise cited the Philippines as the “most improved” nation among members of the Association of Southeast Asian Nations with American firms expressing increased satisfaction over the stability of the country’s political system. The survey results showed that satisfaction with the Philippines increased across 14 of the 16 business factors covered by the survey over the last five years.

The consensus among local and foreign economists, financial analysts and government economic officials is that the Philippines is now in a much better position to weather the current economic storm than it was during the 1997 Asian financial crisis. However, being in a better position does not mean the Philippines will not be affected. The impact will be only less severe than those of its neighbors. For instance, the peso has been predicted to fall below 45 to a dollar and the stock market is forecast to experience more volatility. The broader picture, however, shows that the Philippine economic growth story remains intact.