The Philippine economy in 2019

I usually attend three or four economic briefings between December and February, preferably one of them from the government’s economic team, and the rest from the universal banks and private economic research companies.

I need to do this to be able to write the chairman’s or president’s message to the shareholders in the annual reports of the companies where I sit as board member. And I really need to do this as an investment banker, to be able to contribute to the operating budgets and the strategies of the companies.

Most companies start making the assumptions for their operating budgets for the following year in September, and finalize them in December or January, to come up with the full-blown Projected Income Statement and Balance Sheet for the year in the January board meeting.

To be able to make a reasonably credible forecast of the economy and business of the coming years, the performance of the prior years, are reviewed and used as baseline data, particularly the just recent past year. While there is no assurance the previous years will greatly influence the coming years, general trends are perceptible and, barring major disruptions, are good starting points.

2018 was a challenging year even as the Gross Domestic Product grew at 6.2%. This was lower than the growth in 2017 and below the government’s 7% to 7.5% projection. Viewed in relation to the low inflation, tame interest rates, stable exchange rates and the almost 7% economic growth in the last seven years, there was mild disappointment and an apprehension that it was ending the high economic growth momentum of the country.

The government’s bungling that disrupted the supply chain and created bottlenecks in basic commodities, especially rice and fish, plus the higher oil prices raised the inflation rate to over 6%. This made the Bangko Sentral ng Pilipinas tighten money supply and raise interest rates by 1.75%, which then raised the banks’ lending rates to over 7% to most of their clients.

This led to a 12.5% drop in the stock market index with $1.1 billion of foreign portfolio investments leaving the country. The peso-dollar exchange rate also tumbled to a high of P55 to the dollar from P49. And gasoline and diesel prices rose by 10%. For business people who have been in business for more than 10 years, it was not really a bad year as they had experienced worse years, but was still a year to reassess and fine-tune your business plans.

In 2019, the consensus among the economists I have heard are; inflation will go down to the 3.5% for the full year, interest rates will drop by 1%, the stock market index should be back to the 8300 level, and the peso-dollar exchange rate will be P54.00.

Inflation has already started to come down in January and February and oil prices seem to be fairly steady. The “Build, build, build” program of the government will put pressure on the exchange rate due to the large import requirements of these projects, which cannot be compensated by OFW remittances, exports, and BPO earnings, so the peso exchange rate will deteriorate.

On the whole the economy will grow at 6.5%, which is better than the 6.2% of 2018 but still below the government’s 7% target, and this already factors in the 1% stimulus of the elections that will happen in May 13 of this year.

Given the above economic scenario and barring any major natural and political disasters, 2019 should not be a problem to most businesses in the short and medium term.  In fact, it would be a good starting point for a new strategic initiative for the new technological innovations invading your business.