Overheated

The stream of bad news was unrelenting last week.

Jobs data in the US showed the world’s largest economy was able to grind out only 18,000 jobs the past month. The estimate was for the economy to produce at least 160,000 new jobs in June.

The latest jobs numbers was so disappointing, it could be a politically game-changing event. President Barack Obama had to hastily call a press conference to calm his nation’s anxieties about the health of the American economy. The state of the economy will determine if he keeps his job after next year’s elections.

No doubt, the latest jobs numbers throws a large cloud over frantic negotiations going on between the Obama presidency and the Republican-led US Congress over adjustments in the legally mandated debt ceiling. If that ceiling is not adjusted very soon, the US government will default on its debts by August 2.

Across the Atlantic, the financial troubles several European economies are grappling with continue to generate uncertainty about the Eurozone. Growth targets are being adjusted downwards across the continent because of the combined effects of rising fuel prices and possibly higher interest rates.

As the week closed, China released its inflation figures. Those figures are disconcerting.

For the month of June, China’s inflation rate climbed up to 6.4 percent. That is just the tip of the iceberg. The consumer price index for all food items rose 14.4 percent. The price of pork alone rose by 57.1 percent.

Food price inflation is everywhere a crucial political concern. In China, over half the incomes of poorer families go to food. Continued food price inflation could lead to political turbulence.

Chinese authorities have not been passive. Since October last year, interest rates were increased five times in a valiant effort to slay the dragon of inflation. Notwithstanding, the inflation rate just continues to crawl upwards.

The rising inflation rate in China, the single most important world’s engine of growth, signals a domestic economy that is overheating. Two factors, rapidly increasing bank lending and rapidly rising consumer demand, push up the inflation rate.

The antidote in order to cool the economy is to raise interest rates to slow bank lending and eventually slow down investments. That, in turn, should rein in galloping consumer demand in an increasingly prosperous society. Considering regime legitimacy in China rests almost entirely on the delivery of rapid growth, a calculated slowdown will be a delicate maneuver indeed.

Too, a slowing of Chinese economic growth will have adverse implications for the rest of the global economy. Many economies depend on rising Chinese raw material and consumer demand for sustaining their own growth. Higher capital costs and higher wages in China will push up the prices of Chinese exports and add to the inflation rates of importing nations.

We have a looming inflation problem too — although ours is propelled by rising costs of imported fuel rather than by heady investments.

As of June, our inflation rate stood at 4.6 percent. That is at the higher end of the targeted range of between three percent and five percent. More worrying, the BSP announced that in the next three months, the inflation rate will exceed five percent. The price of oil, beyond our means to control, decides our economic fate. Higher interest rates, the only tool we have to tame inflation, will slow growth and increase poverty.

Better check our hatches. The ride ahead will be rough.

Wakeboarding

We hope our tourist arrivals hold up despite inclement conditions in the global economy — given rumors of presidential dissatisfaction over the performance of the Tourism Secretary. An increase in tourist arrivals is needed to help offset the expected OFW job losses in Saudi Arabia that recently imposed new restrictions on hiring foreign workers.

Among our most important tourist draws, it appears, is wakeboarding. The sport brought droves of water sportsmen to the Gota Beach in CamSur’s now world-renown Caramoan Peninsula.

In response to the sport’s tourist potential, billions in public and private investments was sunk in developing facilities at Caramoan. The sport, and the spanking new tourist facilities at Caramoan, are now the poor province’s bet to climb out of poverty. Without minerals or industries, and not much agriculture prowess to speak of, tourism is CamSur’s most reliable ladder out of the economic cellar.

The people of CamSur, however, were surprised to hear their governor, LRay Villafuerte, pitch for the newly-opened Republic Nuvali Wakepark. He calls the new facility the “ultimate destination” for wakeboard enthusiasts, with the added advantage of being so close to Manila.

LRay’s pitch on behalf of a purely private facility is not without weight. He heads the Philippine Wakeboard Association and is a member of the Asian Wakeboarding Council. His position of influence enables him to convince the World Wakeboarding Association to hold its competition in Nuvali instead of Caramoan.

His constituents find this rather strange. The provincial government of CamSur, after all, is heavily invested in Caramoan. The governor should draw tourists to Caramoan first. That does not seem to be his inclination, however.

If tourist arrivals do not dramatically increase in the light of global economic vulnerabilities, all the investments in wakeboarding facilities might fail to recoup. We might see here yet another instance of the “hot pandesal phenomenon” where money was lost because, in the wake of initial profitability, more people jumped into the business than the market could support.