Boom or Gloom?
A Philippine Economic Outlook for 2010

If Mr. Anton Periquet, Managing Director of Deutsche Regis Partners had to choose between boom or gloom for the Philippines in 2010, he said he was leaning more on boom. The reasons for his rather positive forecast were discussed during the 7th PANA General Membership Meeting last July 30, 2009 at the Hard Rock Café in Glorietta 3, Makati City.

Anton said that in studying the past 32 US recessions that happened from 1854 to 2001, he noticed that these recessions only lasted for an average of six quarters or two years. Considering that the latest US recession officially started in December 2007, he declared that we are currently in the seventh quarter already.

In the Philippine setting, devaluation was the direct and immediate result for the two economic downturns which happened in 1991 and 1998. Currently, the country’s economy is not experiencing such effect. He credits the OFW remittances for shielding the country from the adverse effects of the US recessions.

He mentioned that one in four household is an exporter of labor. This average Filipino family increases spending when the peso devaluates since they are able to exchange the dollar remittances they regularly receive at a higher rate.

“Even without OFW remittances, it is very rare for recessions to last for more than two years,” added Anton.

Refreshing the advertisers’ memory of the formula in determining the country’s Gross Domestic Product (GDP), Anton identified Personal Consumption, Investment/Business Spending and Government Consumption as the critical factors that make up the GDP equation, as the latter part of the equation, which is composed of foreign trade components, tend to cancel each other out.

Anton stated that Personal Consumption is need-driven and that 3/4 of the economy belong to the D and E market. He described these markets as having very little discretionary spending which means that they normally spend only on necessities so there’s not much room for adjustment. Only those that belong to Class A, B and C of the economy are more likely to cut down on non-essentials such as travel, shopping, etc.

Investment, on the other hand, is confidence-driven and is very volatile. There was a 16% decline in terms of investment as most of the businesses are currently on a wait-and-see mode. Given that 2010 is an election year, however, there is a sense of optimism and confidence that the country will move forward regardless of who will win so investments may be up next year.

Meanwhile, Government spending can be a positive driver for growth but only in a limited capacity. To grow the economy, it can increase its spending, as has been the trend whenever the present leader is about to turn-over the state of affairs, including the country’s debt, to the next president.

Anton further stated that if the Philippines is holding up better in recessionary times, the country is no longer dependent on investment. “We are more dependent on remittances,” said Anton. Although remittances are stable, which is a source of the country’s resiliency during these tough times, it also has with it certain social costs.

“The country’s greatest strength is the also its greatest weakness,” cautioned Anton.

Investments generate jobs and in turn, create tax payers. Dependence on remittances, on the other hand, will stabilize the peso but will also give way to the continued rise of the informal economy which is comprised of the “D” Class. The OFW’s beneficiaries who do not feel the need to work mostly fall in this category. They patronize sachets and smaller Stock Keeping Units (SKUs) and are usually non-cable TV viewers so there would be a continued dominance of free TV as a medium. The rise of this informal economy will further redound to weaker tax collections which may prompt the government to solicit higher taxes.

Anton also shared that although he anticipates weak consumer bank loans as the banks would be more stringent with their loan qualifications to avoid the situation that big international banks are facing right now, he predicts that there will still be growth in the real estate sector as property developers will continue to act as lenders.