Macroeconomic Fundamentals to Shield PHL
Global financial markets are panicky over the spread of COVID-19. Global stocks from Wall Street to Asia and Europe have crashed due to the fear of the unknown.
The coronavirus disease, as I have said earlier, will make a dent in the Philippine economy, but we should treat it as more of a blip than a lasting trend. It is similar to the blip that surfaced when the passage of the 2019 budget was delayed last year. That delay curtailed state spending for the most part of the first half of 2019, eventually causing an economic expansion to slow down before a catch-up spending plan boosted growth in the latter half of the year.
COVID-19 will result in the disruption of the global supply chain, especially those coming from the industrial output of the hardest-hit Hubei province in China. That, in turn, may weaken the economic expansion of the world’s second-biggest economy in the first quarter, and create a spillover effect to the rest of Asia and the world.
Uncertainty over the extent of the coronavirus damage on the economy of powerhouse China and on global companies operating in the country’s industrial zones has worried global stock market investors. With the virus spreading to South Korea, Europe, and the Middle East, traders are dumping stocks in search of safe investment havens.
They are lining up to buy 10-year and 30-year US Treasuries, which are dropping to around record lows. The Japanese yen is also gaining a safe-haven status against the US dollar, although the greenback itself is hovering around one-year highs against the Australian dollar. Investors, meanwhile, cannot count on oil because a global economic slowdown will further depress prices in the international market.
I strongly believe the Philippine economy will survive and go over this hump amid the nervousness in the global financial markets. We have solid macroeconomic fundamentals that will shield the Philippines from a possible slowdown in global economic growth.
A benign inflation rate, higher tax revenue base, stable exchange rate, and improving debt-to-GDP (gross domestic product) ratio augur well for the Philippine economy in the years to come.
The debt-to-GDP ratio, for instance, improved to 41.5 percent at the end of 2019 from 41.9 percent a year ago, beating the program of 41.7 percent for the year. The ratio is a clear indication of prudent cash and debt management, backed by steady economic growth by the Duterte administration.
The debt ratio is a critical measure of a country’s economic performance. A lower ratio means an economy is producing and, selling goods and services sufficient to pay back debts without incurring further debt.
The Philippines, of course, will somehow feel the impact of the COVID-19 outbreak. It is critical for the government to respond to the crisis to keep the economic growth target on track and the macroeconomic fundamentals intact. I am pleased to learn that the Bangko Sentral ng Pilipinas is readying its response to the virus.
BSP Governor Benjamin Diokno last week said the central bank would consider a bigger interest rate reduction this year to support the economy amid the impact of the coronavirus outbreak that already affected the transport and tourism sector. Governor Diokno’s statement is music to the ears of the corporate world.
Further rate cuts, according to Diokno, could happen, aside from his earlier commitment of a 50 basis point reduction for 2020. Diokno says the BSP has a lot of monetary space and fiscal space, adding that “if things deteriorate much beyond what we have originally forecasted, we might consider additional cuts in reserve requirement or in the interest rate or policy rate.”
Diokno’s statement agrees with the observation of analysts and economists, who believe the spread of the COVID-19 could prompt central banks in the region to cut interest rates to boost economic growth.
I believe further rate cuts amid the uncertain external environment will protect our economic gains in the past few years and sustain the reforms that serve as the backbone of long-term sustainable development. Alertness and readiness to respond to any crisis will solidify these gains.
Source:
Business Mirror/Author/MannyVillar
