Interesting times ahead in 2015


First of two parts

Ben D. Kritz

Ben D. Kritz

Over the past few days, more than one columnist I regularly read has made the assertion that “If you didn’t invest in [something]in 2014, 2015 will be the year you regret not doing so.”

The ‘somethings’ in these examples were the local stock market, real estate, bonds, commodities and gold.

Some of the details of the various outlooks on these things are probably debatable, but the overall mood is striking: 2015 is being regarded with a certain degree of apprehension, even among those who are generally optimistic about this year’s prospects for the economy.

The reason why is obvious. The unexpected circumstances that developed during 2014 are going to have their greatest impact in 2015, and even though world events have been analyzed by just about everyone capable of forming opinions, no one really knows what will happen; there is no useful historical precedent for 2014’s unique combination of global-scale crises.

One’s crisis is another’s bonanza, however, so whether or not 2015 will be a ‘good’ or ‘bad’ year is a matter of perspective. There a number of factors that are causes for concern and perhaps even alarm, but there are clearly some potential opportunities as well:

The oil price collapse will last until at least June—June is when the next regular meeting of the members of OPEC will take place; since comments made by oil ministers in the past few weeks were not particularly subtle about dousing expectations for a meeting before then, the soonest the cartel could take action to try to arrest the slide in oil prices would be at mid-year.

Whether OPEC would take action by cutting production is another question. An even bigger question, however, is whether OPEC actually could do enough on its own to reverse the oil price drop. Several analyses have estimated the production margin that OPEC could play with at between 1.5 million and 5 million barrels per day; the magnitude of a production cut, if any, would almost certainly be in the lower end of that range, which may only be enough to slow but not stop the decline in prices without significant cuts in US production.

As long as oil prices remain low, their direct effects are positive for the Philippines; the country should have much lower inflation this year, and lower fuel prices should provide at least a modest boost in trade, particularly with the Philippines’ recent attainment of GSP+ status with the European Union.

The indirect effects, which are not likely to be favorable, will happen later in the year; the oil price decline has reached a point where it is going to start being a visible drag on the world’s biggest economies. That will eventually lead to oil prices recovering to much higher levels, probably more quickly than they have declined, which will undo the short-term advantages for the Philippines. When that will happen is anyone’s guess; my own guess is that it will happen sometime in the third quarter, with the impact being reflected in fourth-quarter economic indicators.

Government will continue to have little impact—For a variety of reasons that will be explained in a forthcoming special report, even though a number of officials have gamely promised that both government budget management and spending will improve this year, it will have little effect on the overall economy. The fiscal space in which the government can make adjustments is actually rather limited, and there is no rational reason to assume an approach that has been established over the past four years would otherwise be significantly changed.

The estimates from analysts for 2015’s GDP growth average about 6.3 percent; there a couple outliers, estimates as high as 7 percent and as low as 5.8 percent, but the 6.3 consensus seems a realistic forecast for what the economy can achieve on its own without tangible government involvement.

That’s good news in the respect that the growth rate would be among the highest in the region, and indicates a certain continuing economic stability ahead of what is likely to be a stability-rattling change in government in about 18 months’ time. On the negative side, however, 6.3 percent is one or two percent less than the sustained rate of growth most analysts believe the country needs to maintain in order to make significant inroads on chronic problems like poverty, unemployment, and low investment.

More fearless forecasts will follow in part two on Tuesday.


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