Last weekend’s hurricane “Florence” that pummeled the US eastern seaboard particularly the Carolinas and Virginia, and typhoon “Ompong” which hit the Philippines on the way to China were considered super storms. As of Sunday, there were nine casualties in the US and 14 in the Philippines, and enormous damage to structures. These two calamities were less destructive than the hurricane that hit Puerto Rico last year and supertyphoon Yolanda that hit the Philippines years ago, that caused more than 6,000 casualties in all. As far as natural disasters are concerned, and storms in particular, Florence and Ompong were not perfect storms and thank God they were not.
Perfect storms happen when three raging weather disturbances combine with each other from different directions, so there is no escape or avoiding the conditions. This is what happened in the movie “The Perfect Storm,” a George Clooney, Mark Wahlberg, and Diane lane starrer, which was based on a real-life event that happened in 1991 in the Atlantic Ocean.
The perfect storm we are referring to in this column is the confluence of direction and events which includes the natural disasters, but also the economic and political storms that are gathering and seems to be growing in both the US and the Philippines. The impact of the recent storms will probably knock off 1 percent in the GDP growth in both countries due to lost revenues and reconstruction costs. But these are affordable given the strong growth so far this year. For the US, the more worrisome issue is the escalating trade war with China and other countries which will start affecting the US economy in the medium term. Lower trade volumes will lead to lower production and higher prices, then lower GDP growth. Even more worrisome is the political drift of the Trump government which lacks the coordinated and integrated governance process/policy both in the domestic and international arena. The government decisions are “seat of the pants” opinions and tweets and these will have domestic and foreign repercussions.
In the Philippines, aside from the economic costs of typhoon Ompong and other natural disasters that visit us regularly, the rice shortage and high prices will continue. The fuel prices will also keep going up as world prices of oil increases, so escalating inflation which is now over 6 percent will be hard to tame. This will be bad for the middle class and the poor. Tightening monetary policy will increase interest rates and raise cost of doing business, and slow down investments. So, there might be a need to retrain fiscal spending with or without TRAIN 2. Philippine GDP growth will drop to the five-percent range, which is still good but bad for poverty alleviation and financial inclusion.
On the Philippine political front, the perception of the movement toward a more authoritarian government will surely deter domestic and foreign investment. This will shorten the third leg of our economy and will further restrict GDP growth. And the lack of an integrated and coordinated decision/policy making process will lead to political troubles for the government. Prioritizing Federalism, capacity delays in the infrastructure spending, crackdown on government critics, and undermining institutions and the Constitution are unnecessary distractions the government can do without.
The people currently in the US and Philippine governments are not really in an enviable position right now. Hopefully they will rise up to the challenge and the occasion to avoid/deflect the coming “Perfect Storm.”