WHO CARES ABOUT THE GLOBAL RECESSION?

The Philippine Star
02/25/08

With the resounding noise generated in the political arena during the last two weeks, it seems that most upbeat domestic economic news which in the past had received banner headline treatment is now being muted by politics.

We have just had our fair share of good tidings largely on account of the huge remittance and overwhelming hot money flows that had been flooding local shores in the not so recent past. And yet, no one seems to be mindful.

Since the start of the year, there has been an onslaught of positive news – the smallest deficit in a decade, the fastest economic growth in 31 years, and a positive rating outlook from Moody's Investors Service. The stock market was riding on a bull run, and most businesses were reporting double digit earnings.

But when the credible and incredible witness Rodolfo “Jun” Lozada emerged, the market started showing signs of unraveling. The peso once again exhibited volatility, stocks began losing its luster, and bond yields started inching up.

The peso has been on a roller coaster ride since the Senate resumed investigation into the $329 million ZTE broadband deal. Stocks and bonds haven't been spared; the benchmark stock index is trading at its lowest since August. Bond yields recently were at their highest since late last year. The government, in fact, has been rejecting bids at weekly auctions in the past weeks.

Brewing world problems

To be pragmatic though about the latest local drama unfolding, a lot of things brewing in world economies could be held more accountable for the recent tizzy that the peso, stock and bond markets are experiencing. While the economy does not seem to be as sensitive as before to local politics, not so unfortunately from the unfolding world crisis.

Global financial markets have been in a bit of disarray since the subprime problem blew up last year. To date, financial institutions involved in subprime-related losses or write-downs estimate the damage to have already exceeded $150 billion.

Among the big names that have admitted vulnerability to housing mortage-related losses are a number of giants in the financial sector – Citigroup, Merrill Lynch, UBS AG, Morgan Stanley, Bank of America, Credit Agricole, Credit Suisse, even insurance firm American International Group.

U.S. president George Bush has unveiled an economic stimulus package, one that hopefully will buy the American economy with enough time to sort out its financial mess and stave off the current recession from getting any worse.

Lately, it has not helped America that world commodity prices are also taking some of their wildest swings. Oil has breached the $100 per barrel mark, and may not budge from its current broad level for some time. Meanwhile, gold, platinum, palladium, even silver are setting new record highs.

All of these are weighing heavily on the United States' attempts to nurse its economy back to a growth path.

Not so mighty these days

Also, as most of our countrymen are well aware of, the mighty US dollar ain't so great lately. The recent appreciation of the peso has been seized as an opportunity by many businesses, but not so our exporters, mostly those that source their raw materials and production inputs from within the country.

Within the Southeast Asian region, commodity and food prices are rising, fueling fears of inflation. Philippine consumer prices surged to 4.9 percent in January, the highest in 15 months because of higher rice, water and fuel prices.

This month, the rate will probably climb some more, owing to some base effects due to last year's drop in inflation. Around this time too, dollar remittances by our hardworking Filipinos abroad will have started to normalize.

Worse, all those rosy forecasts made last year are being modified – downwards. We're seeing economic growth figures trimmed by one or two percentage points; there is new talk that the peso may no longer breach the 39 level; and the inflation index may also see some upward tweaking.

All of these are simply a reflection that the dreaded slowdown in the world's biggest economy is going to hurt us – whether or not the opposition is able to capitalize on the controversial ZTE deal or their star witness Lozada and his tales of commission, overpricing and corruption.

Worldwide, economies are bracing for hard times. China, which had been touted by economists to be least affected by the U.S. financial problems, is currently teetering as its January inflation has risen highest in more than a decade after the country's worst snowstorms in 50 years disrupted supply and forced it to cut production.

Europe has revised its inflation figures, preferring to take a more conservative view of growth in the coming two to three quarters, at least until the U.S. will be able to demonstrate the soundness of recent fiscal initiatives.

The U.S. Federal Reserves will be meeting soon, and many are seeing another rate cut, which is now already at a low 3 percent, a steep drop from its 5.25 percent level barely six months ago.

Bracing for hard times

Given the unfolding external and domestic threats, the Bangko Sentral ng Pilipinas is likely in its next deliberation to pause from giving rate cuts after announcing its fourth consecutive since October. The monetary board is due to meet again next month to discuss, among others, if it will cut interest rates once again.

Meantime, our elected officials continue to conduct their investigations, seemingly unmindful of other potential dangers that the economy could soon be facing.

Who's going to take seriously the economic stimulus package that Joey Salceda is proposing? Who's interested in a discussion on rising oil prices? Who's seriously working on lending a helping hand to our embattled exporters? Who cares if inflation goes haywire?

Who cares about tough times ahead?

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