Our growth forecasts for the rest of the year have been adjusted yet again. This time, however, they were adjusted upwards.
That is a reflection of improved global market conditions and improved confidence in the possibility that the recessionary episode will be shorter than expected.
The Philippines, we can now proudly proclaim, successfully dodged recession. We are one of very few economies to have accomplished such a feat, considering the high degree of global economic interdependence now pertaining.
There are several reasons why we managed to dodge the bullet, not all of them positive.
Like Indonesia, that also dodged recession, we have a large domestic market capable of independently supporting most of our enterprises. More than Indonesia, however, our domestic demand is powered by remittances from a large overseas workforce. With a population twice larger than ours, however, Indonesia enjoys a much larger domestic market to rely on — and some of its own oil supply.
Earlier this year, there was some concern remittances would drop secondary to the shrinking of economic activity in most of the host economies from where remittance inflows originate. That concern deepened after oil prices dipped nearly as dramatically as they rose. A large portion of our overseas workforce is employed in economies entirely dependent on oil export revenues.
Instead of dropping, however, remittance flows actually rose.
That event tells us that as much as we are dependent on remittance flows, the host economies are also dependent on the labor we supply. It likewise underscores the improvement in the skills profile of our overseas labor force, making them indispensable to the economies they work in. This is particularly true of the army of nurses, physical therapists, caregivers and doctors we have deployed abroad.
Our economy did teeter on the brink of recession in the second quarter, expanding by only a hairline. A decline in remittance inflows might have spelled the difference between avoiding recession and falling headlong into economic contraction.
Most of the so-called “tiger economies” of East Asia plunged into deep recession. The reason for that is the extent of their dependence on their highly successful export industries. Economic contraction in the West reflected immediately in dropping production and massive layoffs in their export industries.
That weakness, however, is also their strength. As soon as consumer confidence returns to the markets of North America and Western Europe, the export-driven economies of East Asia will rebound energetically. The comparatively less export-dependent economies of Indonesia and the Philippines will rebound at a slower pace.
It is almost certain that the mature industrial economies will climb out of recession either towards the yearend or early next year. The Group of 20 industrial economies met last week and agreed to continue the stimulus packages deployed to fight the recessionary downturn.
The International Monetary Fund, likewise, raised its growth forecast for the global economy to almost 3 percent. That is just about the rate of expansion we saw before the recessionary episode hit us.
As we climb out of this recessionary episode, the preeminent role played by the two most populous economies — China and India — will become even more emphasized. The two economies have both large domestic markets serviced by large enterprises as well as strong export competence.
China, most analysts concede, will rise to the status of an economic superpower this century. It has the largest export potential. It has the largest foreign currency reserves, making this economy the world’s biggest lender. It has near-monopoly of rare earth metals essential for high-technology production. Then, of course, it has its population — which will likely increase as Beijing begins to relax its one-child policy to meet the manpower demands of the future.
India, for its part, is already a leader in information technology industries. With its large corporations consolidating in vital areas such as global steel supply, this economy is expected to be the main production site for heavy industries such as car-making.
This bout with recession may be brief. But it will irreversibly alter the configuration of the global economy — along with that, the distribution of created wealth.
For our part, there is hardly any debate stimulus spending should continue well into next year. The spending will surely engorge our budget deficit and add to our debt stock. But the social cost of not doing this will even be larger — not just in terms of poverty volumes but also in terms of opportunities foregone.
For our purposes, the stimulus spending must be finely understood as public investments to upgrade the nation’s capital stock. The bulk of stimulus spending ought to be concentrated on building up infrastructure and improving the quality of our education. Both will yield economic returns long into the future.
I have doubts about the cash transfer programs, even as similar programs might have brought demonstrable relief to the poorest in other countries. The cash transfer programs must be rigorously conditioned on counterpart actions by the beneficiaries such as keeping children in schools. The distribution of rice packs through the school system achieves two goals simultaneously: averting child malnutrition and encouraging them to remain in their classrooms.
As things are shaping up, the forthcoming elections should not be a major burden to the pace of recovery. There are no great ideological debates to be resolved and no major reversals in economic strategy forecast. That is good.