Global Financial Crisis and Its Impacts to Philippine Exports

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Global Financial Crisis and Its Impacts to
Philippine Exports

• Benjamin E. Diokno, Ph.D.

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Unchartered territory

• Past excesses what FED chairman Alan Greenspan
  called irrational exuberance have thrown the
  world into a colossal financial turmoil and have
  pushed it into a full blown global recession
• The loss in wealth is enormous so far, financial
  institutions have recorded losses of some 500
  billion loss in market value of company shares
  has amounted to 23 trillion 21 banks have
  collapsed in the U.S. alone.
• Job loss at Wall Street and London City may reach
  200,000 and 40,000 respectively by year-end.
  Millions will join the global army of unemployed.
  

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Financial crisis globalized

• The financial crisis that started with the
  sub-prime mortgage crisis has morphed into a full
  blown, global economic crisis. In a globalized
  world, decoupling is dead.
• Lehman Brothers high-profile bankruptcy
  propelled global stock markets into a free fall
  on Black Monday September 15th 2008. All 5
  giant investment banks in the U.S. went bankrupt,
  were sold, merged or dismantled.
• In an unprecedented move, the U.S. government
  assumed effective control of mortgage providers
  Fannie Mae and Freddie Mac, and of global
  insurers American International Group (AIG).

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Financial and economic contagion

• UK mortgage provider Northern Rock faced bank
  runs
• German Hypo Real Estate and Belgian Fortis were
  on the verge of financial collapse
• Failing banking sector pushed Iceland to the
  brink of state bankruptcy
• China, a major holder of US treasury bills lost
  heavily due to the appreciation of the yuan
  against the U.S. dollar and a significant decline
  in exports to the U.S. and other developed
  countries

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Financial and economic contagion

• Japan is suffering from the steep appreciation of
  the yen and an uncertain future for its export
  sector
• With the looming prospect of a weaker world
  economy, the price of oil has collapsed badly
  hitting Venezuela and other OPEC member
  countries.
• The UAE are reeling from debt exceeding their GDP
• Pakistan, Hungary, Argentina, Iceland and Ukraine
  sought international help from IMF and other
  sources to avoid financial and economic failure.

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Governments response is massive

• US in addition to 700 billion rescue package,
  the U.S. government is preparing another
  300-500 fiscal stimulus package. The Feds
  balance sheet has increased from 900 billion in
  August to about 3 trillion in November 2008 due
  to a wide range of new support measures for the
  banking sector and the wider public. Special
  programs are being considered for the US and
  European car industries.
• The EU is coordinating a Euros 200 billion
  stabilization and recovery program for its
  members for 2009-2010, equivalent to 1.5 of EUs
  annual GDP

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Governments response is massive

• UK has put a 500 billion UK pounds rescue package
  for the banking sector temporary reduction of
  the VAT from 17.5 to 15. Government borrowing
  will amount to half a trillion UK pounds over the
  next 5 years.
• Germany has launched the new Stabilization Fund
  for Financial Markets. It will help distressed
  German financial institutions through a package
  of state guarantees and government buy-ins. The
  federal and regional governments plan to spend
  Euros 23 billion for a stimulus program ranging
  from support to small businesses to education and
  technological development.

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Governments response is massive

• Chinas huge 1500 billion stimulus package
  includes public works, social welfare and tax
  reform. The main spending areas are public
  housing for the poor infrastructure projects
  such as railways, roads, airports and power
  earthquake rehabilitation higher spending health
  and education and increased rural incomes.

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Impacts of crisis on the Philippines

• Slower exports as a result of weaker world
  economy and consequently slower international
  trade
• Reduction in remittances and pressure on local
  labor markets due to drop of overseas employment,
  and increasing return of migrant workers. This
  is in addition to the natural increase of about 1
  to 1.5 new workers to the labor force.
• Fall in foreign direct investments (FDIs) because
  of credit crunch and risk aversion.

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Export Performance
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The worst is yet to come
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The worst is yet to come

• For the U.S. economy, the eye of the economic
  storm, its GDP is expected to slow from a low of
  1.4 in 2008 to -0.2 in 2009. The National
  Bureau of Economic Research has declared that the
  U.S. economy has been in recession since December
  2007.
• Japans economy is expected to slow to 0.3 in
  2008, and is expected to contract to -0.1 in
  2009. A weak recovery is expected in 2010.

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The worst is yet to come

• Chinas growth is expected to take a hit in 2009.
  Real GDP growth is expected to moderate to 8 in
  2009, from 9.6 in 2008. The slowdown is due to
  the poor outlook for net exports and property
  investment.
• Hong Kongs GDP is expected to slow sharply
  from 3.8 in 2008 to 0.5 in 2009.
• Netherlands, the fifth highest destination of
  Philippine exports, is expected to slow
  drastically from a GDP growth of 3.5 in 2007,
  it is expected to slow to 2 in 2008 and contract
  by 0.2 in 2009.

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The worst is yet to come

• Singapores economy contracted by 6.3 during the
  third quarter of 2008. The expectation is that
  its economy would slow to 2.0 in 2008 and
  contract mildly to -0.1 in 2009.
• South Korea, another export-oriented economy, is
  expected to slow sharply from a GDP growth of
  5.0 in 2007, the economy is expected to grow by
  4.5 in 2008 and decelerate to 1.6 in 2009.
• Taiwans GDP growth is expected to slow from 4.0
  in 2008 to 1.5 in 2009.

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The worst is yet to come

• Germanys economy is expected to contract by 0.2
  in 2009, from a weak 1.4 growth in 2008.
  Recovery is expected in 2010 though the pick up
  is expected to be mild at 1.6.
• Malaysia is not expected to be in recession, but
  the economic slowdown is projected to be sharp
  from 5.6 GDP growth in 2008 to 3.2 in 2009. GDP
  growth is expected to be modest at 3.6 in 2010.

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Some conclusions

• The economies of the top 10 export destinations
  of Philippine exports are expected to get worse
  in 2009, and a weak recovery is projected in 2010
  for these economies.
• The share of Philippine exports to the U.S. the
  center of the worlds economic storm is grossly
  understated. A big chunk of Philippine exports to
  other countries such as Japan, China, HK,
  Taiwan, South Korea and Netherlands eventually
  end up as exports to the US.

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Final Words

• The Philippine exports sector is facing
  formidable challenges in the next two years. Many
  export firms have closed and their workers laid
  off as a result of the the slower and fast
  deteriorating world economy.
• With no signs that the U.S. economy was nearing a
  bottom, the current recession could set a new
  record on length. Depending on the depth and
  length of the economic recession, more exporters
  and workers in the export sector are at risk.

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Thank you!

• -bediokno_at_gmail.com