State of the world

WE OFTEN tend to forget that our country is part of the planet, and that the economies of nations—even their culture and politics—are getting closer and closer to each other, affecting each other more and more. The state of our nation will always be affected by the state of the world, just as it had always been.

THE GLOBAL ECONOMY. President Aquino is lucky in that he assumes office in precisely the period when the state of the world economy is looking better. After the slowdown triggered by the global financial crisis that started in the United States in 2007, the global economy is expected to pick up in the first year of the Aquino II presidency.

He is in fact the luckiest president since the 1990s. President Fidel V. Ramos assumed power in 1992 just as the global recession—due partly to the oil-price surge in the wake of the first Gulf War—started. President Joseph Estrada became president in 1998 just when the Asian financial crisis that started July 1997 was raging. President Gloria Macapagal-Arroyo’s first year had to be expended combating the fierce backlash against the overthrow of a popular president. Then, the almost-unbelievable happened in her second year in office: jihadist terrorism in the unprecedented, horrifying scale of the World Trade Center bombing and the consequent copy-cat Mindanao versions, and then the massive US invasion of Iraq and Afghanistan.

In contrast, except in a few southern European countries and of course barring Iraq and Afghanistan, it’s mostly a sunny day in the planet as President Aquino assumes office.

The following table from the World Bank’s recent Global Economic Forecast shows the upbeat forecast for the world economy, and details for the US and High-Income Economies (HICs), in large part due to the successful intervention in developed countries in their economies. I include the People’s Republic of China (PRC) because of its increasing role in the world economy, and especially in ours.

Real GDP Growth Rates ($ change)

Year     World     US     HIC     PRC
2008     1.7         0.4     0.4     9.6
2009     -2.1         -2.4     -3.3     8.7
2010     3.3         3.3     2.3     9.5
2011     3.3         2.9     2.4     8.5
2012     3.5         3.0     2.6     8.2
[2008 and 2009 actual; 2010-2012, forecasts]

With our exports representing 37% of our GDP, our economy will be given a boost by the 11% rebound in world trade this year, after a steep drop of 12% last year. World trade is then forecast to grow 7% annually in 2011 and 2012. With the recovery in most of the high-income economies which have huge numbers of migrant workers, including our countrymen, workers’ remittances will grow 6% this year and 7% in 2011, after the 6% decline in 2009 induced by the global slowdown.

And then of course, the economic fundamentals of the country have probably never been strongest: inflation and interest rates are low, our currency has remained stable, the budget deficit’s worst case scenario is for the gap to be at a still quite manageable 3.8% of GDP (compared to, say, Malaysia’s 7.8% and Thailand’s 4.6%). The often-accurate Global Resource Partners’ Romy Bernardo in his 2 June report even revised drastically his GDP growth forecast this year from 3.7% to a robust 5.1%.

While our country rises with the rise of the global tide, its growth rates however still has paled in comparison with those of other countries. This is shown in the following table (based on International Monetary Fund data), in which I use the average GDP for the “Asean 3”—Indonesia, Thailand and Malaysia—for comparative purposes. Our performance though has been improving, with our growth rate in the past nine years only very slightly below that of the Asean 3.

At least based on the IMF’s analysis, we cannot rely solely on the global high tide to lift our country. As shown in the table below, the IMF estimates that the country’s growth rates for each year from 2010 to 2015 will still fall below the average for the world, and the average for the Asean 3. The Aquino II presidency has its work cut out for it. Only with a unified nation can we hope to finally push our economy to a developed status in this decade.

Real GDP Growth Rates (% change)

YEARS         RP     World     Asean 3
1986-1991     3.9     3.3         7.1
1992-1997     3.8     3.1         7.5
1998-2000     2.9     3.7         -0.1
2001-2009     4.4     3.4         4.5
2010             3.6     4.2         5.4
2011             4.0     4.3         5.6
2012-2015     4.0     4.5         5.7
[For multiple years, the average; 2010 onwards, estimates]

GLOBAL SECURITY. Towards the end of 2000, the consensus world economic forecast had been rosy for the succeeding years, as the feared global recession that could have followed the 1997 Asian crisis did not materialize. The forecasts were wrong though, because the unexpected World Trade Center bombing and the consequent Iraq and Afghanistan invasions had the overall effect of aborting world economic recovery, and may have even indirectly led to the 2007-2008 downturn.

In a similar fashion, non-economic developments could affect the world economy, among them:

  • The resolution (or non-resolution) of the Iraq and Afghanistan wars, which has already cost the US at least $1 trillion;
  • The course of North Korea’s nuclear sabre-rattling, and the transition to a post-Kim Jong-il era;
  • Conflict in the Middle East over the Palestinian issue, especially involving Israel’s policies in the West Bank and Gaza Strip that inflame Islamic countries;
  • Jihadist terrorism, which has become increasingly worrying because of the US’ failure to destroy Al-Qaida which may have even re-established its base in Afghanistan and built new ones in Somalia.

Barring these nightmares, we can indeed dream again.

From the Philippine Daily Inquirer