By: John Carlo Tria
THE Trump-China “trade war” has created enough consequences by raising tariffs on many goods. Trump’s moves have provoked similar retaliatory moves by China, the world’s second-largest economy. Overall, this will slow global growth.
Already, major economies are forecasting slower growth as a result of lower trade volumes between the US and China due to higher tariffs that hamper free trade. This forces companies, especially those invested in China and the US, to rethink their options and cut their own growth forecasts.
Singapore, Taiwan, the European Union all have slower growth prospects due to lower global trade. In the latest announcement by the European Union, the forecast for the European area for 2019 is at 1.2% and for 2020 it is at 1.4%. Japan has also adjusted its growth projections to about 1.2%
With that, our expected growth rate of the Philippines at 6%, according to both government and private-sector economists led by Security Bank (http://www.resurgent.ph/articles.aspx?id=948). This remains high when compared with other countries mentioned and even our ASEAN neighbors. Despite an initial slowdown early this year due to delayed budget approval, economic growth is expected to regain ground due to increased public spending and stimulus.
The tariffs imposed are hoped to make it cheaper for American companies to bring back their manufacturing plants, since it, theoretically, will be cheaper for them to manufacturing with the tariff regime in place. This, Trump hopes, will stimulate his own economy and reclaim the jobs lost to China.
Moving forward, it is clear to me that the economy with a higher growth rate and larger population (China) will win the long game. The Chinese do not play a long game if they cannot foresee a win. The US can only hope to win in the short term by winning back many American companies that have moved offshore to China. Whether or not it retains the rank of the world’s largest economy is uncertain.
The bigger question for us is how we are affected. Will a global growth slowdown affect our Overseas Filipino Workers (OFWs)? Note that OFW income, by comparison, is now slightly lower than tourism and almost at par with Business Process Outsourcing income, all these industries depend on the incomes of foreign countries to remain robust.
Lower growth in these countries means less hiring for foreign workers, less money for tips and possibly, less overtime pay for the employees and even lesser money for overseas tours. Note that when global economic growth is high, our remittances are also higher. OFW Remittances, like tourism income, are seen as direct cash infusion into our economy.
Nonetheless, we need to accelerate infrastructure spending to continue spurring investment growth. The lower inflation achieved in August means that there will be more purchasing power for Filipino consumers that can boost spending and buoy the economy. We will need to boost our local economy by spending while keeping inflation or costs low.
As I wrote in an earlier column, high inflation that catches up with the growth, such as the kind we experienced last year at 5-6%, eats into growth and hinders it, rendering it incapable of supporting. With these lowered down to 1.7%, we can expect positive growth and an increase in family incomes since expenses will be lower. When this happens, the economy keeps expanding.