Yuletide spirit and the bubble burst

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Ej Lopez

Ej Lopez

We have not even felt the sting of the Yuletide spirit and hardly has the season started its joyous celebration and here comes what seems to be a prelude to the Lenten season, the economic sufferings that can be brought out by the threat of unabated price increases. The inexorable threat of price increases has come at a time when the country is deep in dilemma caused by nature’s unceasing piece that devastated innumerable lives and properties. The public as well as the private sector have had more than enough of its share in assisting the people who are victims of the tragedy. Coupled with the selfless acts coming from friendly nations, it has somehow eased the sufferings and momentarily alleviated the pain and agony of the adversity brought about by Typhoon Yolanda.

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The economic impact of Yolanda though not nationally significant in terms of growth national product (GNP), cannot disregard the regional effect of the damages it has done. The national unemployment statistics stands to accelerate further in response to its consequences. In addition to the woes are the multiplier effect of the increase prices of both crude oil and energy that will be economically jolting starting next fiscal year. Not much activity is expected to transpire that will offset the threatening price increase. There seems to be no windfall graces to afflict us locally, if only to cushion the impact of the impasse. The situation if not properly addressed will create a recessionary effect that will pull the economy back to earth.

There seems to be no let-up in our problem as regards the two related products, oil and electricity. What seems to be worrisome is the fact that the country has one of the most expensive if not the most expensive energy cost in Asia. It seems that they would like to stand by the principle that they could charge whatever they can to consumers all costs pertinent to operations, including the amount of profit that they want to earn. The Manila Electric Co. (Meralco) is the only company in this world that has no right to lose. Regardless of Meralco’s ineptitude, they have a guaranteed profit intake which other companies do not enjoy. Households (and sometimes even the government) in this situation have their hands tied in this situation. It means stretching the peso further to meet household expenses that remains stagnant because of low income. As a result of such expected scenario of prices stepping up, we can expect inflation to further increase. Therefore, relative to these is the ensuing increase in local interest rates which will also increase the cost of borrowing. The aftermath would be the possible unavailability of investment spending resulting to an increase in unemployment.

Are we in for a bubble burst
Just like a soap bubble, the moment it reaches its maximum size, it inevitably explodes. It is nature’s way of limiting one’s activity lest it becomes problematic or inconvenient. Similarly like a soap bubble, an economic bubble is a mere flash in the pan since it disappears as fast as it appears.

The Philippine economy was in a heyday the past few years, enjoying its peak in almost all sectors of the industry. Stock market record-breaking achievements never before accomplished were collectively achieved. It was independently done despite the bearish atmosphere in the world market. Unprecedented aggregate remittances were achieved from mostly overseas Filipino workers (OFWs). It was by far the most consistent considering that the same was achieved during Gloria Arroyo’s term. The real estate industry was consistent in growth the past few years and has increased the aggregate stock of investment of individuals. Pledges of foreign investment are pouring in as result of the President’s foreign sojourn. The perceived political stability is by far the most encouraging factor that brought the economy into its current growth. As such, the value of the peso vis-à-vis the US dollar has appreciated considerably the past several years.

The considerable accomplishment in recent years although may have been a cumulative work of several regimes combined has been put into reality by the Aquino administration. Never there has been a President whose people’s trust rating approval has been relatively consistent despite some “imperfections.” Political trust was the main reason behind the accolades the local economy has steadily attained during the recent years. Fundamental macroeconomic indicators remain steadfast despite the lack of foreign direct investment (FDIs). Local investors took the risks and won the gambit despite the lack of stable market to offer their products. These were achieved despite the lack of economic support from the Southern Philippines brought about by what seem to be a chronic energy problem that has never been addressed, even by the previous regime.

But recent events seem to turn the tide against our favor. Demand for real properties has tapered off considerably with a net income -26.9 percentage points in the third quarter of 2013 from -16.2 percentage points in the same period of last year. The first to the third quarter performance showed a considerable decrease in the net income from -11.6 percent to -28.4 percent. This was negatively complemented by a considerable increase in energy cost coupled with the hefty increase in the price of oil products. These are like the “Sword of Damocles” hanging above and waiting to chop our heads.

This stands to create a certain kind of economic disorder that will negatively affect the people’s buying capacity, because it will ultimately create “high” inflation and interest rates. Not to mention the continued depreciation of the peso against the dollar. So what do we expect to happen next fiscal year?

This will come in the midst of all adversities the country has gone through this year. With the possible materialization of FDI and local investments in the offing, the country hopes to create a business and economic scenario that will cushion the impact of the so called “bubble burst.”

For comments email: doc.ejlopez@gmail.com with cc to: opinion@manilatimes.net.

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