Strong PHL Economy to Weather Middle East Crisis
Geopolitical tensions in the Middle East are again testing the Philippine economy so early this year. I am confident, however, that we will weather this latest crisis and that the economy will grow more robust in 2020 despite the many challenges.
The world oil market was one of the first to react when the US Pentagon confirmed that an airstrike on January 3 in Baghdad International Airport killed top Iranian commander Qassem Soleimani. Global oil prices in knee-jerk reaction rose over 4 percent, with Brent hitting $69.16 per barrel and West Texas Intermediate (WTI) crude reaching $63.84 a barrel. Oil prices since then have retreated from their highs.
Unless the US-Iran tension escalates into a full-blown regional war (which I doubt) and key oil supply routes are disrupted, the Philippine economy will continue to chart a growth path. Given the country’s solid macroeconomic fundamentals and the massive infrastructure program of the Duterte administration, I believe the Philippines will ride out the unfolding crisis in the Middle East.
The government is closely monitoring the situation because of its impact on world oil prices and the deployment of millions of overseas Filipino workers (OFWs) in the Middle East. President Duterte has already ordered top government officials to travel to the Middle East and check on the welfare of Filipinos there.
The President is not taking any chances. He directed Environment Secretary and former special envoy to Middle East Roy Cimatu to immediately fly to the region to prepare for the evacuation of some 4 million Filipinos if violence broke out and endangered their lives.
But Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno has so far downplayed any significant impact on the Philippine economy. And I can only agree with him. World oil prices did not really shoot up, except for the temporary 4-percent spike.
Our government economic planners have been conservative in forecasting oil prices. Diokno said for the oil prices to make a difference in the forecast of economic managers, they must hit $90 per barrel. He noted that the Dubai price of oil was still below $60 per barrel.
Workers’ remittances are also holding up. Filipinos are mostly working in Saudi Arabia and very few of them work in Iraq or Iran. Money sent home by OFWs, based on the latest BSP data, rose 8 percent in October last year to $2.67 billion, the fastest expansion in 2019, from $2.47 billion a year ago. Overall remittances in the first 10 months of 2019 stood at $24.86 billion, up 4.6 percent from $23.77 billion in the same period last year.
Remittances, along with receipts from foreign tourists and revenues from the business process outsourcing sector, have boosted the gross international reserves of the BSP to an all-time high of $87.855 billion. The huge reserves have strengthened the peso against the US dollar. The peso is trading at around 50.75 against the greenback and has stood its ground despite the lingering US-China trade war.
A strong peso, low inflation, and interest rates, the “Build, Build, Build” program, and the current high approval ratings of President Duterte are supporting the robust expansion of the Philippine economy.
Foreign financial institutions, as a result, are bullish on the Philippines. Fan Cheuk Wan, HSBC managing director and chief market strategist for Asia, told the media that the Philippine economy would grow 6.4 percent in 2020 and 6.5 percent in 2021, faster than the estimated 5.8 percent expansion in 2019. Economic growth, according to her, would be driven by robust consumption amid the slow inflation and rebound in investments, adding the Philippines would continue to outperform its peers in the region.
The signing of the 2020 budget has also assured a vigorous economic expansion this year. The P4.1-trillion budget, which is equivalent to 19.5 percent of the projected gross domestic product, is 12 percent bigger than the 2019 budget.
Global debt watcher, Moody’s Investors Service sees the Philippine economy growing 6.2 percent in 2020, faster than the estimated 5.8 percent in 2019, due mainly of the timely signing of the P4.1-trillion national budget. Moody’s sees the signing into law of the 2020 budget by President Duterte “credit positive.”
The World Bank, for its part, expects the economy to grow by more than 6 percent annually over the next three years and remain one of the fastest-growing markets in Southeast Asia.
I am equally upbeat. I believe we will have a stronger domestic economy this year, one that is robust enough to withstand external threats.