Optimism

Being optimistic is a good thing. It gives you a positive feeling. It makes you see challenges rather than stumbling blocks. It makes you believe there is a tomorrow worth waking up for.

Then too, it is important to publicly sound optimistic, specially given a regime like what we have now. Any hint of doubt is seen as an affront and that is bad for business. At a gathering of the federation of Chinoy taipans last week, I expected everyone to exude optimism if they said anything at all.

It was the same too with the expert assigned to give a briefing on the economic environment. Jonathan Ravelas, chief market strategist of Banco de Oro, tried his best to present an optimistic outlook. Luckily, he had the right numbers to convince skeptics we are among the world’s fastest growing economies.

Phl: Steady as she goes is the reassuring title Jonas gave his presentation. His opening powerpoint slide had a dreamy sunset as background.

The next slide was about the global outlook and Jonas gave the good news that synchronized economic upturn will persist in 2018. As proof, he showed comparable GDP numbers from our ASEAN neighbors, China and India.

 Jonas thinks our last quarter will show an impressive 7.5 GDP growth rate. Several slides later, he predicts a 6.8 percent GDP growth for the entire 2018.

Jonas said that a country’s GDP must grow 3x its population growth rate for an economy to be considered healthy. A rough calculation of two percent population growth times three, and six percent is right where we are.

Google says our population growth rate is now only 1.6 percent,  so that just calls for 4.8 GDP growth rate and we are doing beyond that. Reason to be optimistic, indeed! 

On our economic outlook for 2018, Jonas predicts consumer prices will go up by 3.6 percent, driven by rising commodity prices. Unemployment will be 5.2 percent as he expects job creation in tourism, manufacturing and services sector. But he offered no number for underemployment. Consumption growth will be at 6.4 percent and government spending will be up 14.2 percent, driven by a boost from BBB.

Like most analysts, Jonas is taking government’s word that the infrastructure program will finally take off this year. What happens if it doesn’t? It will disappoint, of course, and the credibility of the economic managers and Duterte himself will suffer. 

I still have my doubts. We have to be careful when the budget secretary says the money has been released. That only means the money has moved from the Treasury to the accounts of the implementing agencies. But not a centavo has flowed into the economy yet.

Other than BCDA’s Clark Airport whose public bidding was won by Megawide, we haven’t heard of any other major infra project in the administration’s priority list actually moving. The top priority train projects of DOTr and the Pasig bridges of DPWH are still in the realm of press releases.

On our financial outlook, Jonas is seeing a 3.5 percent interest rate, a P52.00 to the $1.00 exchange rate,  and the PSEi at 9,100. For those of us who are senior citizens, Jonas showed a disturbing chart: we are losing money on the interest rates we are getting for our retirement savings measured against the current four percent inflation rate.

The three month T-Bill gives a net yield of 2.14 percent; the six month T-Bill gives a net yield of 2.28 percent; the one year T-Bill yields a net of 2.43 percent; the two year  T-Note gives a net of 3.28 percent; the three year T-Note yields a net of 3.44 percent; the five year T- Note yields a net of 3.98 percent; time deposits gives a net of two percent and the PSEi so far yields a return of 0.98 percent.

To earn more to beat inflation, you have to invest on a 10 year T- Note which yields a net of 4.48 percent; and the 20 year T- Note at a net of 5.13 percent. Looks like seniors will still have to take more risky investments to hope to get something above inflation.

Jonas also cited the growing trade deficit as one reason why there is volatility in the exchange rate. Rising imports are simply widening the trade gap. But he echoed the  government line that we shouldn’t worry because the rising imports cover capital goods for the BBB program.

I am not too sure about that. I was in another briefing some months ago by Ronald Mendoza of Ateneo’s  School of Government, and got a different story. Ronald’s researchers went through the details of the high import numbers and found out that a large part of that is accounted for by imported cars.

Yes, cars... the same ones that clog our streets everyday. Folks were buying more cars to beat the tax rate increase under TRAIN. Besides, no major infra projects have been awarded so why would anyone start importing capital equipment for BBB?

Jonas next talked about OFW flows which stood at $28.06 billion last year, or 4.3 percent higher than 2016. He was not too worried about the impact of the deployment ban of OFWs to Kuwait or rising Saudization of jobs. He described our OFW earnings as resilient.

There are risks, Jonas cited, from emerging trends like disruptive technologies affecting our BPO industry. But we can and should just move higher up the value chain.

Indeed, a senior executive in a tech company recently told me we now have a lot of people trained in analytics. But, he said, there is a shortage of really good project management people.

I came out of the briefing feeling a bit more optimistic. But the elephant in the room no one talked about was political risk. That, I think, will determine if optimism is justified.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco.