The global recession is all but certain. The indicators point to this impending event: the negative or inconsequential gross domestic products in leading economies, near-bankruptcies in Iceland, Hungary, Ukraine and a few other marginal economies, free-fall of all stock markets, bankruptcies or near-bankruptcies of major national banks, investment houses, and insurance firms, dramatic profit losses or loss of earnings of vast swatches of industries, capital flight from emerging or marginal economies, falling exchange rates, increasing jobless situations, and reversals or huge decreases in foreign direct investments.
In the Philippines, the effects are beginning to show, as discussed in the article “Initial Tremors: Investments, Exports, Remittances” by Aya Fabros of Focus on Global South.
Foreign direct investment (FDI) declined by a sharp 60.2% in January-July 2008 compared to the same period in 2007, from US$2,400 million to US$960 million. This is a huge reversal from the figures in 2007, which showed a 138.9 % growth in FDI compared to the $ 1 Billion investment posted in 2006 for the same period (January-July). The US direct investment, in particular, dropped from US$621 million to US$205 million for the same period in 2007 compared t 2008.
Foreign portfolio investment or “hot money” also showed the same dramatic shift. From January to September 2008, it showed a net outflow of US$521.7 million, a sharp reversal from the same period last year, which posted net inflows of US$3.4 billion. The article cited BSP September figures that showed a net outflow of US$312 million, from net inflows of US$187.5 million in August and US$20.2 million in July.
Philippine exports are not yet affected much but the the growth rate has slowed down to 4.4%, comparing the figures from January-August 2007 to the same period in 2008. The growth is not however expected to last because of declining demand in major markets for Philippine products as a result of the coming recession.
The OFW remittances remain the bright spot it is with the continued growth of 17.2% for the period January-August 2008 compared to the same period in 2007. This is based on a continued growth of 26.4% in the OFW deployment. Again, this is the sector that is also vulnerable in the coming months due to the global recession.
The global recession to come will deliver a one-two punch to the Philippine economy. First, the direct effects of the global recession will affect the vulnerable sectors that are linked to the global economy: export-import, banking and finance, investment, OFW remittance, outsourcing, local franchises, and service contracts. Second, the induced local recession will affect basically the entire Philippine economy: businesses, jobs and employment, investment, real estate, mall operations, etc. Only those involve in basic industries such as retail trade, agriculture and food production, health, clothing, and education will be minimally affected.
We should all prepare for the inevitable. The recession, as an issue, has the promise of overshadowing all other issues.