1 / 18

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.

nell-campbell
Download Presentation

Global Financial Crisis and Its Impacts to Philippine Exports

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Global Financial Crisis and Its Impacts to Philippine Exports Benjamin E. Diokno, Ph.D.

  2. 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.

  3. 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).

  4. 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

  5. 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.

  6. 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

  7. 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.

  8. 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.

  9. 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.

  10. Export Performance

  11. The worst is yet to come

  12. 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.

  13. 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.

  14. 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.

  15. 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.

  16. 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.

  17. 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.

  18. Thank you! -bediokno@gmail.com Diokno I Forecast 2008 and 2009

More Related