January 29, 2019

What Lies Ahead: The Philippines Economy in 2019

Last year was full of economic challenge for our country. Inflation was in all time high and Central Bank (Banko Sentral ng Pilipinas [BSP]) flexing its muscle by raising the interest rate. The trade war between China and U.S. and economic uncertainties in the Middle East contributed to lowered strength of Philippine currency. Stock market saw and felt the economic challenges of the country, last year was a market bear for Philippines stocks. 

Although 2018 was full of economic difficulties, to the point that World Bank is warning that the country is overheating, there is still light at the back of the story. Quarterly growth remain strong at 6% plus level, a sign that the economy is still performing well. While inflation is on upward trend, it turns to slow down as the year ends, signaling that efforts to curb inflation are working. End of the year holidays also saw remittance coming, leading to strengthening of Peso against Dollar from PHP55 to PHP52 level. With all the latter being said, we have an idea that 2019 has a good start for the economy; but, what will 2019 bring to the country and what lies ahead?

Inflation topic is up again in 2019 as TRAIN 2 is already in effect resulting for some to conclude that the implementation will result to upward spiraling of the overall price of goods. Yet, experts are arguing that additional tax on oil will have little effect on the overall price, since oil price in the world market has started to go down. Thus, the additional tax on oil will be compensated by declining oil price in the world market. Furthermore, price of oil domestically should start to see some down trend since Peso (PHP) currency has already gained strength in the past few days which would result to lower import cost compared last year. 

Retail and construction supplies is seeing boom this year as government pushes more Build. Build. Build projects out of the pipeline. Last year, government building projects paid construction salary of about P17 Billion from January to July 2018 and spent P281 Billion on infrastructure projects from January to May 2018 (according to Sec. Dominguez III). It is expected that more construction jobs will be in demand this year as more projects progress from conceptualization to building stage. 

E-commerce is also gaining ground in the country as cheap items from China flood the Philippines online stores. The low cost of selling goods in the internet is creating income nationwide, and this is a good sign that internet economy has a good future in the Philippines. According to Google, Philippines internet economy will grow from 5 Billion Dollars in 2018 to 21 Billion Dollars in 2025. The growth in e-commerce is also seen to contribute growth in logistics business.

Tourism industry should take a further leap this year as Boracay recently opens after being closed for rehabilitation. Since 2011, tourism income share on economy has significantly increased from 5.9% to 12.2% in 2017 (source: PSA). construction road works connecting urban areas to rural areas would further strengthen the growth of tourism in the country, last year from January to October 2018, 5.9 million international tourist arrival were recorded by Department of Tourism, 7.4% higher compare same period in 2017; with majority of the visitors coming from Korea, China, USA, and Japan.

Philippines stocks showed signs of recovery, even though the Hanjin Bankruptcy temporarily halted the upward momentum of Philippine Stock Exchange Index (PSEi), the trend is still very clear that the country’s stocks are on the rise. Central Bank also hinted that it will no longer increase interest rate in the next few months, which is a sign that the mother of all banks is seeing that inflation is already stabilizing. 

While it is good to be optimistic, it is still important to identify the problems and trends that might cause economic growth to reverse. There is a hot debate about the effect of Federalism in the overall economy. Whether the shift in this particular type of government will bring prosperity or it will cause political chaos. Yet, in this early stage of development of Federal System, the public will still not be able to gauge the real effect of the proposed change. The Federal Constitution draft is not yet available for public scrutiny, and if available, only lawyers and experts will understand the writings. So it is very important that the changes in the constitution be explained in the public in layman's term. 

On the other side, the war on drug is for sure to continue this year and it looks like that the fight will not end so soon. This might imply that there might be other reason why people are seeking illegal drugs, it might be more than addiction. The reason might be psychological or economical, it might be rooted to family problem or financial problem. Whatever the reason, the root cause must be addressed through implementation of right government policies and projects from the government, non-government, and private organizations.

Even though Libya has resumed its oil production last year, which pushed the oil supply up and caused some downward shift in the price, oil supply is still seen as volatile. Economic uncertainties in the Middle East triggered by war and violence could negatively affect the supply of oil, and thus, might push the price upward. While the shift in renewable energy and the promotion of electric vehicle might put some pressure on oil as consumers shift their demand from oil to electric energy which will result for oil price to go down. Oil is vital part of all economic activity, a major increase in the price of oil might result to increased in transportation cost and could affect the price of basic goods.

There is much to tell about the factors that might affect the growth of the Philippines, but without diving into more details (because this might be too much), Philippine Economist projects that Gross Domestic Product (measurement of economic growth) will be in high levels at 6.67% in 2019. (source: https://www.phileconomist.com/p/philippines-gross-domestic-product-gdp.html

Hopefully, government policies and projects will further strengthen the economic development of the nation; with further hope that inclusive growth will always be at the center of decision making of the leaders of this country. 

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