Uncertainties at the start of 2019

The start of 2019 brings some bitter news, one that raises anxiety among Filipinos who still remember how rising prices of basic commodities in the year just past could spoil prospects of the promise of an improved life.

We may have recently seen lower crude prices and corresponding slashes in pump price levels of petroleum products, but a significant increase in excise tax from the second tranche of the Tax Reform for Acceleration and Inclusion (TRAIN) Law is about to hit consumers in the next few days.

Local oil companies are just emptying their old inventories, and soon after, the full effect of TRAIN’s year 2 stipulations on fuel product excises taxes will be felt.

This should not be too bad given the fact that we’ve just experienced significant slashes in pump prices, but it is the market reaction on the additional taxes that bears watching, specifically on the manipulation of prices of basic commodities – just like what happened last year.

Let’s hope our economic team is now better prepared to respond to any smart moves by those who want to earn a few bucks by trying to create some market supply tightness.

Global scenarios

We’re seeing a jittery global economy. There’s no one solid prognosis on where 2019 is headed.

The cartel of oil producing nations have just declared a production supply cut of 1.2 million barrels per day, although some feel that this may not be enough to counter the perceived continued weakening of the global economy and effect of a trade war fully erupting between China and the US.

A recent poll of economists, however, is looking at oil averaging $70 per barrel this year, lower than the peak reached last year, but higher than the averages before 2018. In this scenario, the world economy is not that lame, and the trade war crisis will ease.

If there is no positive resolution to the Chinese-US trade talks by March, a slowdown in China’s economy would be imminent and this would cause a glut in oil that would weaken prices. Overall, everything is marked with so much ambiguity.

Beyond 80

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo noted in the recently concluded Pilipinas Conference that the Philippines was on its 79th consecutive quarter of growth, undermining rumors that the Philippine economy is overheating.

With the last quarter of 2018 registering another period of growth, this makes for the 80th consecutive quarter, and 2019 will most likely add another four quarters. All this supports that the Philippines is not likely to have a relapse soon, as some pundits dare suggest.

Still, this does not mean that what the economic team has been doing so far is beyond fallibility, and that the steps taken towards the path of stronger economic growth is without risks. We have seen this happen in 2018, and we could see this happen again in 2019.

Global debt watcher S&P Global Ratings has given us a new view to global growth. It says that the operating environment in Asia-Pacific is “losing steam,” with global growth drivers in the region in 2017 have “started to fall away.”

S&P noted that the first change was easy external financing, with US dollar interest rates now higher. Second change, the global debt watcher said, was the “buoyant demand growth in China as policy tightening rippled through the economy.”

Finally, S&P pointed out the “clear turn in the trade cycle as growth divergence returned among the major economies.” In the end, the S&P brief said, “the impact on growth has been larger than we had expected.”

Downward revisions

The harsh observations may not have been contained in outlooks prepared by other multilateral lending agencies and global ratings institutions, but there is a consensus towards revising their readings lower. The Philippine government maintains its 2019 target at seven to eight percent.

S&P cut its growth projections for the country to 6.4 percent in 2019 from 6.6 percent. The Asian Development Bank views gross domestic production to drop to 6.7 percent from 6.9 percent, while the World Bank is looking at 6.5 percent, lower from its earlier 6.7 percent projected growth.

Overall, inflation estimates have been lowered, but are mostly at the higher end of the official BSP view of two to four percent this year. Fitch Solutions puts inflation at an average of 5.2 percent. ADB maintains it at four percent, which is still at the highest end of the government projections.

While there is a tempering of outlooks on the conservative side, projections for the Philippines are still on the high side despite red flags on increasing borrowing costs, capital outflows, and depreciation pressures.

Die has been cast

The President remains strongly behind Build Build Build, a P9-trillion infrastructure investment push that intends to fuel future economic growth and bring up the standard of living of more Filipinos at par with other leading developing economies.

The cause-and-effect economic formulas being applied to support such an ambitious move are more bookish than pragmatic, hence the hint of clumsiness when reacting to unexpected abrupt wind changes, like what happened when crude oil prices abruptly rose last year.

But the die has been cast, and the best that can be done now is to quicken responses and make the right decisions to any change that may significantly affect the nation’s chartered sail.

In a year that will be marked with unsettling changes and uncertainties, upheavals and conflicts, Filipinos are best advised to hang on tight if they wish to survive this coming bumpy ride.

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