Transcript Global Financial Crisis and its Impacts to Philippine Exports

Global Financial Crisis and Its Impacts to
Philippine Exports
Benjamin E. Diokno, Ph.D.

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.
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 Brother’s 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).
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
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.
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 Fed’s 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 EU’s annual GDP
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.
Governments’ response is massive
 China’s 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.
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.
Export Performance
Country
Jan-Sep 08 $mn
Percent share
Annual growth
Total
38,868
100.0
4.04
Top 10 countries Total
32,894
84.63
2.58
1. USA
6,327
16.28
0.46
2. Japan
6,029
15.51
11.22
3. China
4,469
11.50
6.06
4. Hong Kong
3,883
9.99
(10.24)
5. Netherlands
2,931
7.54
(5.49)
6. Singapore
2,199
5.66
(2.18)
7. Korea, Republic of
2,088
5.37
55.79
8. Taiwan
1,467
3.77
(9.63)
9. Germany
1,901
4.89
18.44
10. Malaysia
1,599
4.12
(15.33)
11. Others
5,975
15.37
12.86
The worst is yet to come
Malaysia
Germany
Taiwan
S. Korea
Singapore
2009
Netherlands
2008
Hong Kong
China
Japan
U.S.A.
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
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.
 Japan’s 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.
The worst is yet to come
 China’s 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 Kong’s 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.
The worst is yet to come
 Singapore’s 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.
 Taiwan’s GDP growth is expected to slow from 4.0%
in 2008 to 1.5% in 2009.
The worst is yet to come
 Germany’s 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.
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 world’s 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.
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!
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Diokno I Forecast 2008 and 2009