As we end 2016 and begin a new year, we look back at two developments and how these could affect our businesses in 2017. In other words, we would like to connect the dots to determine the future.
The first development that caught the market and the global political stage by surprise was the growing populist outlook that appealed to the interests of the general population. It was a concept that urged social change favoring the people over the rich and wealthy as well as the entrenched and arrogant governing class.
It purportedly addressed the hopes and fears of the majority. In the stunning Brexit, the principal proponent campaigned to leave the EU, styling himself as a middle class boy, and telling stories about out-of-control immigration to the coddling of radical Islamism. This was followed by the Du30 surprise that promised a complete makeover of the socioeconomic landscape predicated on a platform of peace and order. American politics was disrupted by a real estate baron and casino owner turned TV star. This populist movement is expected to spread throughout Europe.
Where could these dots lead?
We are hearing about the abandonment of free trade agreements, ostensibly to protect the majority who might have lost jobs to lower the cost of production, possibly lower taxes to distribute wealth and also to encourage industries to move back to home countries.
This may affect our own exports of goods and services. This may not be immediate since efficiencies and productivity have been built into the system and it would be difficult to replicate existing platforms.
The efficient market theory has been in working for so long but a lot of global developments, including wars and isolationist programs were driven by sheer socio-political agenda.
The dots could lead to unusual and unexpected conclusions in the same way that the populist movement came in like a storm this year.
The other development consists of various signals from our interconnected economic world. The recent US Fed rate increases have signaled massive outflows of hot money from emerging countries, including the, back to safe havens. This is also having an impact on the foreign exchange rate and the cost of money.
You wonder if the dots will simply stop with the losses from the stock market or lead to a real slowdown in both the market and the economy. If this happens, private investment may slow down and only the Keynesian infrastructure development of the government would sustain the growth that we have previously experienced.
On the other hand, our OFWs have more money to spend to reinforce consumer spending that serves as a lynchpin of the economy. We hope this would last and won’t be affected by the protectionist and populist movements going on around the world.
We certainly have a lot to be thankful for: the relative peace in our country and prospects for a brighter future, not just for the few but for a growing segment of our people. We certainly hope that the dots would lead to prosperity and stability for our country.
Ronald Goseco is the EVP of the Financial Executives Institute of the Philippines and COO of IDI Volkswagen