Tigerlook Philippine Economic Conference

Corpecon Research, its clients and friends attended the Tigerlook Economic Conference last Thursday.  The speakers were Dr. Emmanuel J. Lopez and Professor Edmund Tayao.  Dr. Lopez is the chair of the Department of Economics in UST and is a columnist for the Manila Times.  Professor Tayao is a political analyst, political science professor and a key personality in good local governance in the Philippines.  He is also the executive director, concurrently serving as vice chairman of the board of trustees, of Local Government Development Foundation (LOGODEF).  The prospects of the Philippine economy in 2016 and beyond were discussed as well as the presidential elections and programs which could help Philippine economic development.

There were a lot of interesting topics discussed, but being in the stock market, what we remember the most was Dr. Lopez’s forecast that the PSEi will be bullish in 2H16.  Looking at the PSEi’s performance YTD and at a span of one year, the bears have dominated and have brought down the PSEi from its all-time high last April 2015 in the 8,000 level.  It is a presidential election year this 2016.  All presidential election years dating back to the early 90s when Fidel Ramos won, the Philippine stock market has rallied.  These rallies were mainly fueled by market perception of a better upcoming six-year period than the previous six-year period.  It was also a return of funds back into equities as uncertainties were dissolved with the announcement of the new Philippine president.

Timing is on the side of bulls in 2016 and also fundamentals.  The peso is weak, oil prices and inflation are low and GDP growth seems to be stable at 6% per quarter.  These should fuel consumer and government spending, but Dr. Lopez noted that Filipinos aren’t even spending.  Even the government isn’t spending as it is held back by allegations of the misuse of funds for the nation.  This is a major concern as economic activity is dampened.

An issue was also raised about the return of two million overseas Filipino workers that will be displaced due to the weakness of the oil sector.  Saudi Arabia already announced major lay-offs because of this, and this issue also hounded the market as the local labor force cannot absorb this influx of returning workers.  However, Dr. Lopez noted that not all but a big portion of the two million overseas Filipino workers will be displaced from work.  They will also come home with fat separation pays that can fuel spending and investments.  The negative effect of this displacement shall still be felt in a year or two when these workers’ final incomes are depleted with no recurring returns.

Lastly, the Philippines is far from becoming a Tiger economy.  The World Bank did recently note that the Philippines is an emerging Tiger economy, but in the conference, the audience was reminded of the 20/50 rule.  This is South Korea’s rule of being an industrialized country.  That is a GDP per capita of USD20,000 for a population of 50 million people.  Unfortunately, the Philippines’ GDP per capita is almost USD3,000 for a population of almost 100 million people.  At the rate GDP is growing, the Philippines is estimated to become an industrialized nation in 2065.  60% of Filipinos work in the agricultural sector which is growing at a measly rate of around 1%.  The poverty rate is 25.8%.  That is the percentage of Filipinos with an income of PHP8,000 (USD160) for a family of five.  A GDP growth rate of 7% for 30 straight years is needed to alleviate poverty.

Dr. Lopez forecasts a GDP growth rate of 6.5% in 2016.  He also noted that the Philippines has a young population.  Soon, 60% of the population is of working age.  The Philippines doesn’t have the problem of an elderly population like Japan.  The Philippines has a different array of problems it should address to catch up with its neighbors in the region.