RECENT NEWS
Philippines: SONA
SONA 2023: Key takeaways from Marcos' second report to the nation
President Ferdinand Marcos Jr. delivered his second State of the Nation Address (SONA), emphasizing his administration's achievements and economic progress amid challenges. He highlighted the country's post-pandemic economic gains and its status as one of the fastest-growing economies globally. The president addressed inflation concerns and pledged to stabilize critical commodity prices, particularly in the agriculture sector, by going after agricultural smugglers and hoarders. He also discussed efforts to increase renewable energy production and promote foreign investments in renewable energy projects. Regarding the government's war on drugs, Marcos stated that the campaign continues with a focus on treatment and rehabilitation rather than solely on enforcement. He urged lawmakers to prioritize various proposed tax reforms and amendments to existing laws. These include a number of proposed tax reforms, including imposing excise taxes on single-use plastics and a value-added tax on digital services. He also pushed for amendments to the Fisheries Code, the Anti-Agricultural Smuggling Act, and the Cooperative Code.
Source: SONA 2023: Key takeaways from Marcos' second report to the nation (25 July 2023), CNN Philippines
SONA 2023: Key takeaways from Marcos' second report to the nation
President Ferdinand Marcos Jr. delivered his second State of the Nation Address (SONA), emphasizing his administration's achievements and economic progress amid challenges. He highlighted the country's post-pandemic economic gains and its status as one of the fastest-growing economies globally. The president addressed inflation concerns and pledged to stabilize critical commodity prices, particularly in the agriculture sector, by going after agricultural smugglers and hoarders. He also discussed efforts to increase renewable energy production and promote foreign investments in renewable energy projects. Regarding the government's war on drugs, Marcos stated that the campaign continues with a focus on treatment and rehabilitation rather than solely on enforcement. He urged lawmakers to prioritize various proposed tax reforms and amendments to existing laws. These include a number of proposed tax reforms, including imposing excise taxes on single-use plastics and a value-added tax on digital services. He also pushed for amendments to the Fisheries Code, the Anti-Agricultural Smuggling Act, and the Cooperative Code.
Source: SONA 2023: Key takeaways from Marcos' second report to the nation (25 July 2023), CNN Philippines
India
India’s journey from agricultural basket case to bread basket
Indian agriculture has historically faced numerous challenges, such as poor working conditions, low production efficiency, and heavy reliance on informal financing. Despite these difficulties, the sector has shown signs of growth, with record harvests and increased farming exports. However, the government's periodic export restraints and tax surcharges, as well as subsidies for fertilizers and pesticides, have hindered its potential impact on global agriculture. Farm sizes have decreased, and environmentally harmful practices, like burning post-harvest stubble, are common. Nevertheless, Indian agriculture is undergoing a subtle evolution. Policies, technology, and finance are gradually bypassing official constraints. Private financial institutions, like HDFC Bank, are increasing agricultural lending at more reasonable rates, reducing farmers' reliance on loan sharks. Innovative supply chains are emerging, with individuals like Anushka Neyol selling directly to urban markets via the internet. Co-operatives, exemplified by Sahyadri Farms, have found success in producing fruits and vegetables for international markets, and agricultural technology companies are introducing advancements, like satellite data, to improve farming practices. Though change is slow and practical limitations persist, signs of progress are evident, and the agriculture sector in India is gradually evolving to overcome its historic challenges.
Source: India’s journey from agricultural basket case to breadbasket (22 June 2023), The Economist
India’s journey from agricultural basket case to bread basket
Indian agriculture has historically faced numerous challenges, such as poor working conditions, low production efficiency, and heavy reliance on informal financing. Despite these difficulties, the sector has shown signs of growth, with record harvests and increased farming exports. However, the government's periodic export restraints and tax surcharges, as well as subsidies for fertilizers and pesticides, have hindered its potential impact on global agriculture. Farm sizes have decreased, and environmentally harmful practices, like burning post-harvest stubble, are common. Nevertheless, Indian agriculture is undergoing a subtle evolution. Policies, technology, and finance are gradually bypassing official constraints. Private financial institutions, like HDFC Bank, are increasing agricultural lending at more reasonable rates, reducing farmers' reliance on loan sharks. Innovative supply chains are emerging, with individuals like Anushka Neyol selling directly to urban markets via the internet. Co-operatives, exemplified by Sahyadri Farms, have found success in producing fruits and vegetables for international markets, and agricultural technology companies are introducing advancements, like satellite data, to improve farming practices. Though change is slow and practical limitations persist, signs of progress are evident, and the agriculture sector in India is gradually evolving to overcome its historic challenges.
Source: India’s journey from agricultural basket case to breadbasket (22 June 2023), The Economist
China
Deflation is curbing China’s economic rise
China's new central-bank boss, Pan Gongsheng, faces the challenge of dealing with too little inflation in the country. Consumer prices in China did not rise in the year leading to June, and the country's GDP deflator fell by 1.4% in the second quarter compared to the previous year, the largest decline since 2009. The absence of inflation poses immediate dangers, such as eroding profits, depressing confidence, and deterring borrowing and investment, which could exacerbate deflationary pressures. Additionally, the lack of inflation could delay China's emergence as the world's largest economy in comparison to the United States. While China's economy is expected to grow by about 5% this year, the forecasts exclude inflation and exchange rates. America's nominal growth, without adjusting for inflation, could exceed 6%, while China's nominal growth is forecasted to be only 5.5%. As a result, the trajectory shows China's economy falling further behind the United States in dollar terms, making it a more distant second-largest economy. The usual expectation for upstart economies like China is that they grow faster than mature economies, and their prices eventually "catch up" with higher prices in developed countries. However, China's prices are currently only about 60% of American prices for similar items. The outlook for China's prices depends on how fast its manufacturing sector grows relative to other industries. To close the GDP gap with America, China will have to narrow the price gap as well.
Source: Deflation is curbing China’s economic rise (27 July 2023), The Economist
Deflation is curbing China’s economic rise
China's new central-bank boss, Pan Gongsheng, faces the challenge of dealing with too little inflation in the country. Consumer prices in China did not rise in the year leading to June, and the country's GDP deflator fell by 1.4% in the second quarter compared to the previous year, the largest decline since 2009. The absence of inflation poses immediate dangers, such as eroding profits, depressing confidence, and deterring borrowing and investment, which could exacerbate deflationary pressures. Additionally, the lack of inflation could delay China's emergence as the world's largest economy in comparison to the United States. While China's economy is expected to grow by about 5% this year, the forecasts exclude inflation and exchange rates. America's nominal growth, without adjusting for inflation, could exceed 6%, while China's nominal growth is forecasted to be only 5.5%. As a result, the trajectory shows China's economy falling further behind the United States in dollar terms, making it a more distant second-largest economy. The usual expectation for upstart economies like China is that they grow faster than mature economies, and their prices eventually "catch up" with higher prices in developed countries. However, China's prices are currently only about 60% of American prices for similar items. The outlook for China's prices depends on how fast its manufacturing sector grows relative to other industries. To close the GDP gap with America, China will have to narrow the price gap as well.
Source: Deflation is curbing China’s economic rise (27 July 2023), The Economist
Manufacturing
NEDA may apply rice tariff model to other farm commodity imports
According to National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan, the Rice Tariffication Law, implemented in 2019, can serve as a model for importing other farm commodities. The law liberalized rice imports by allowing private parties to import rice, instead of the previous monopoly held by the National Food Authority (NFA). Importers are required to pay a 35% tariff on Southeast Asian rice, which generates revenue for the government. The law has been successful in stabilizing rice prices and making the market more predictable and efficient. However, Mr. Balisacan emphasized the need to strike a balance between food security and generating quality jobs in the industry. The Philippines has seen an increase in rice imports, with an estimated 1.62 million metric tons imported in the five months to May, and the United States Department of Agriculture projecting imports to reach 3.8 million metric tons this year.
Source: NEDA may apply rice tariff model to other farm commodity imports (30 July 2023), BusinessWorld Online
NEDA may apply rice tariff model to other farm commodity imports
According to National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan, the Rice Tariffication Law, implemented in 2019, can serve as a model for importing other farm commodities. The law liberalized rice imports by allowing private parties to import rice, instead of the previous monopoly held by the National Food Authority (NFA). Importers are required to pay a 35% tariff on Southeast Asian rice, which generates revenue for the government. The law has been successful in stabilizing rice prices and making the market more predictable and efficient. However, Mr. Balisacan emphasized the need to strike a balance between food security and generating quality jobs in the industry. The Philippines has seen an increase in rice imports, with an estimated 1.62 million metric tons imported in the five months to May, and the United States Department of Agriculture projecting imports to reach 3.8 million metric tons this year.
Source: NEDA may apply rice tariff model to other farm commodity imports (30 July 2023), BusinessWorld Online
China: Economic Growth
How much trouble is China’s economy in?
China's economy grew by 6.3% in the second quarter of the year compared to the same period last year, which appears positive. However, the growth was slower than expected and partly due to a low base in 2022 during pandemic lockdowns. The recovery faced both foreign and domestic obstacles, with a sharp drop in the dollar value of exports and a struggling property market. The nominal growth, before adjusting for inflation, was weaker than the inflation-adjusted figure, indicating a possible deflationary trend. Some commentators and the public believe the actual economic situation may be worse than official figures suggest. Despite this, the government has not introduced significant fiscal stimulus, possibly due to its confidence in the ongoing recovery and concerns about potential side effects on state-owned banks and local governments. However, if growth remains weak, the government may be forced to take more action to revive the economy.
Source: How much trouble is China’s economy in? (17 July 2023), The Economist
How much trouble is China’s economy in?
China's economy grew by 6.3% in the second quarter of the year compared to the same period last year, which appears positive. However, the growth was slower than expected and partly due to a low base in 2022 during pandemic lockdowns. The recovery faced both foreign and domestic obstacles, with a sharp drop in the dollar value of exports and a struggling property market. The nominal growth, before adjusting for inflation, was weaker than the inflation-adjusted figure, indicating a possible deflationary trend. Some commentators and the public believe the actual economic situation may be worse than official figures suggest. Despite this, the government has not introduced significant fiscal stimulus, possibly due to its confidence in the ongoing recovery and concerns about potential side effects on state-owned banks and local governments. However, if growth remains weak, the government may be forced to take more action to revive the economy.
Source: How much trouble is China’s economy in? (17 July 2023), The Economist
Manufacturing
Subsidies and protection for manufacturing will harm the world economy
Governments, especially in the West, are offering substantial subsidies to manufacturers, particularly in the chipmaking and green technology sectors. These subsidies aim to combat climate change, enhance national security, and address the effects of globalization. However, this approach may prove costly and counterproductive. While promoting manufacturing can boost innovation and growth under ideal conditions, the current schemes are more likely to fail or be unnecessarily expensive. Subsidies for cutting-edge technologies like chips and batteries could lead to duplication of production, reducing specialization, raising costs, and hindering economic growth. Additionally, the promises of economic benefits and job creation from these subsidies may not materialize as expected. The focus on manufacturing may backfire, as seen in cases where large sums were invested, but the returns were limited. The obsession with protecting national champions in the manufacturing sector may stifle competition and innovation. Countries should be cautious in providing subsidies and protection to manufacturers and be aware of the potential negative consequences. While national security and certain strategic considerations may justify some support, policymakers need to be clear about the risks and avoid falling into the manufacturing delusion that could ultimately harm their economies.
Source: Subsidies and protection for manufacturing will harm the world economy (13 July 2023), The Economist
Subsidies and protection for manufacturing will harm the world economy
Governments, especially in the West, are offering substantial subsidies to manufacturers, particularly in the chipmaking and green technology sectors. These subsidies aim to combat climate change, enhance national security, and address the effects of globalization. However, this approach may prove costly and counterproductive. While promoting manufacturing can boost innovation and growth under ideal conditions, the current schemes are more likely to fail or be unnecessarily expensive. Subsidies for cutting-edge technologies like chips and batteries could lead to duplication of production, reducing specialization, raising costs, and hindering economic growth. Additionally, the promises of economic benefits and job creation from these subsidies may not materialize as expected. The focus on manufacturing may backfire, as seen in cases where large sums were invested, but the returns were limited. The obsession with protecting national champions in the manufacturing sector may stifle competition and innovation. Countries should be cautious in providing subsidies and protection to manufacturers and be aware of the potential negative consequences. While national security and certain strategic considerations may justify some support, policymakers need to be clear about the risks and avoid falling into the manufacturing delusion that could ultimately harm their economies.
Source: Subsidies and protection for manufacturing will harm the world economy (13 July 2023), The Economist
US credit rating
Fitch cuts US credit rating to AA+; Treasury calls it ‘arbitrary’
Credit rating agency Fitch has downgraded the US government's credit rating from AAA to AA+, which has angered the White House and surprised investors. The downgrade comes even though the recent debt ceiling crisis was resolved two months ago. Fitch cited concerns about the US's fiscal health over the next three years and the repeated last-minute negotiations over the debt ceiling, which could impact the government's ability to meet its financial obligations. This move follows a similar downgrade by Standard & Poor's in the past. The announcement led to a decline in the dollar's value against other currencies, a slight drop in stock futures, and a rise in Treasury futures. Despite this, some experts expect the overall impact of the downgrade to be limited. Fitch's decision is based on a perceived decline in governance standards over the past two decades, even though a debt ceiling agreement had been reached between President Joe Biden and the Republican-controlled House of Representatives a couple of months ago. The US Treasury Secretary, Janet Yellen, and the White House have both expressed disagreement with Fitch's downgrade, considering it arbitrary and based on outdated data.
Source: Fitch cuts US credit rating to AA+; Treasury calls it ‘arbitrary’ will harm the world economy (2 August 2023), BusinessWorld
Fitch cuts US credit rating to AA+; Treasury calls it ‘arbitrary’
Credit rating agency Fitch has downgraded the US government's credit rating from AAA to AA+, which has angered the White House and surprised investors. The downgrade comes even though the recent debt ceiling crisis was resolved two months ago. Fitch cited concerns about the US's fiscal health over the next three years and the repeated last-minute negotiations over the debt ceiling, which could impact the government's ability to meet its financial obligations. This move follows a similar downgrade by Standard & Poor's in the past. The announcement led to a decline in the dollar's value against other currencies, a slight drop in stock futures, and a rise in Treasury futures. Despite this, some experts expect the overall impact of the downgrade to be limited. Fitch's decision is based on a perceived decline in governance standards over the past two decades, even though a debt ceiling agreement had been reached between President Joe Biden and the Republican-controlled House of Representatives a couple of months ago. The US Treasury Secretary, Janet Yellen, and the White House have both expressed disagreement with Fitch's downgrade, considering it arbitrary and based on outdated data.
Source: Fitch cuts US credit rating to AA+; Treasury calls it ‘arbitrary’ will harm the world economy (2 August 2023), BusinessWorld
Philippines; Inflation
PHL inflation slows for sixth straight month in July
Philippine annual inflation has decreased for the sixth consecutive month in July due to slower increases in food and utility costs. The consumer price index rose by 4.7% in July, the lowest annual increase since March 2022, but it remains above the central bank's target range of 2% to 4% for the year. The average headline inflation for January to July was 6.8%. This was below economists' expectations of a 5.0% rise in the consumer price index for July. Core inflation, which excludes volatile food and fuel items, also decreased to 6.7% in July from 7.4% in the previous month. Bangko Sentral ng Pilipinas (BSP) has held interest rates steady in its last two meetings after a series of rate hikes. Despite the recent cooling of prices, the BSP remains cautious about potential risks from wage hikes, transport fare increases, and food supply issues. The BSP is prepared to adjust its monetary policy to manage any price pressures.
Source: PHL inflation slows for sixth straight month in July (4 August 2023), BusinessWorld
PHL inflation slows for sixth straight month in July
Philippine annual inflation has decreased for the sixth consecutive month in July due to slower increases in food and utility costs. The consumer price index rose by 4.7% in July, the lowest annual increase since March 2022, but it remains above the central bank's target range of 2% to 4% for the year. The average headline inflation for January to July was 6.8%. This was below economists' expectations of a 5.0% rise in the consumer price index for July. Core inflation, which excludes volatile food and fuel items, also decreased to 6.7% in July from 7.4% in the previous month. Bangko Sentral ng Pilipinas (BSP) has held interest rates steady in its last two meetings after a series of rate hikes. Despite the recent cooling of prices, the BSP remains cautious about potential risks from wage hikes, transport fare increases, and food supply issues. The BSP is prepared to adjust its monetary policy to manage any price pressures.
Source: PHL inflation slows for sixth straight month in July (4 August 2023), BusinessWorld
Global investments
Global investors pivot from flagging China to India, Vietnam
Global capital flows are shifting away from China towards other emerging Asian markets like India and Vietnam due to concerns about economic and geopolitical risks. Factors contributing to this shift include China's slower post-pandemic economic recovery, concerns about potential conflicts involving Taiwan, worries about asset freeze or illiquidity in Chinese investments, and ongoing human rights concerns. Investors are increasingly drawn to India due to its growing middle class, expanding domestic demand, and expectations of multinational companies relocating manufacturing operations from China to India. The benchmark Sensex index in India has surged to record levels, with significant foreign capital inflows. Vietnam is also attracting attention as a "frontier market" with low labor costs and political stability. Investors are viewing Vietnam as a potential manufacturing hub and investment destination, leading to increased interest in industrial park developers and infrastructure companies in the country.
Source: Global investors pivot from flagging China to India, Vietnam (1 August 2023), Nikkei Asia
Global investors pivot from flagging China to India, Vietnam
Global capital flows are shifting away from China towards other emerging Asian markets like India and Vietnam due to concerns about economic and geopolitical risks. Factors contributing to this shift include China's slower post-pandemic economic recovery, concerns about potential conflicts involving Taiwan, worries about asset freeze or illiquidity in Chinese investments, and ongoing human rights concerns. Investors are increasingly drawn to India due to its growing middle class, expanding domestic demand, and expectations of multinational companies relocating manufacturing operations from China to India. The benchmark Sensex index in India has surged to record levels, with significant foreign capital inflows. Vietnam is also attracting attention as a "frontier market" with low labor costs and political stability. Investors are viewing Vietnam as a potential manufacturing hub and investment destination, leading to increased interest in industrial park developers and infrastructure companies in the country.
Source: Global investors pivot from flagging China to India, Vietnam (1 August 2023), Nikkei Asia
Bank of Japan
The Bank of Japan jolts global markets
The Bank of Japan (BoJ) surprised the markets by adjusting its yield-curve control policy, allowing higher interest rates. This policy, in place for 25 years, aimed to boost economic growth and prevent deflation. The change raised the cap on ten-year government bond yields from 0.5% to 1%, effectively increasing rates. This shift reflects the BoJ's recognition of the need to adapt as global inflation rises. Despite claiming it's not tightening, the move is seen as similar to a rate hike. Balancing this adjustment while managing inflation and avoiding economic strain will be a challenge for the BoJ, given Japan's high government debt.
Source: The Bank of Japan jolts global markets (28 July 2023), The Economist
The Bank of Japan jolts global markets
The Bank of Japan (BoJ) surprised the markets by adjusting its yield-curve control policy, allowing higher interest rates. This policy, in place for 25 years, aimed to boost economic growth and prevent deflation. The change raised the cap on ten-year government bond yields from 0.5% to 1%, effectively increasing rates. This shift reflects the BoJ's recognition of the need to adapt as global inflation rises. Despite claiming it's not tightening, the move is seen as similar to a rate hike. Balancing this adjustment while managing inflation and avoiding economic strain will be a challenge for the BoJ, given Japan's high government debt.
Source: The Bank of Japan jolts global markets (28 July 2023), The Economist
Free Trade
EU, PHL to restart free trade talks
The Philippines and the European Union (EU) are considering resuming negotiations for a free trade agreement (FTA) after a hiatus since 2017. President Ferdinand R. Marcos, Jr. and European Commission President Ursula von der Leyen announced this following a meeting. They will start a "scoping process" to assess mutual understanding for the potential trade deal. If successful, formal negotiations could resume in early 2024. The previous talks stalled due to issues like intellectual property rights and data exclusivity. Both sides see the FTA's potential for economic growth, job creation, and technology cooperation. Moreover, during the meeting between President Ferdinand R. Marcos, Jr. and European Commission President Ursula von der Leyen, climate change was discussed, along with signing a bilateral agreement on the Joint Declaration on the Green Economy Program. This agreement will provide a €60-million grant to the Philippines for green economy efforts, such as circular economy, renewable energy, and climate change mitigation.
Source: EU, PHL to restart free trade talks (1 August 2023), BusinessWorld
Contributors:
Natasha Amber Cabiltes
Edgar Desher Empeño
Jose Lorenzo Mercado
Brendan Emmanuel Miranda
Jacobe Joaquin Sevilla
EU, PHL to restart free trade talks
The Philippines and the European Union (EU) are considering resuming negotiations for a free trade agreement (FTA) after a hiatus since 2017. President Ferdinand R. Marcos, Jr. and European Commission President Ursula von der Leyen announced this following a meeting. They will start a "scoping process" to assess mutual understanding for the potential trade deal. If successful, formal negotiations could resume in early 2024. The previous talks stalled due to issues like intellectual property rights and data exclusivity. Both sides see the FTA's potential for economic growth, job creation, and technology cooperation. Moreover, during the meeting between President Ferdinand R. Marcos, Jr. and European Commission President Ursula von der Leyen, climate change was discussed, along with signing a bilateral agreement on the Joint Declaration on the Green Economy Program. This agreement will provide a €60-million grant to the Philippines for green economy efforts, such as circular economy, renewable energy, and climate change mitigation.
Source: EU, PHL to restart free trade talks (1 August 2023), BusinessWorld
Contributors:
Natasha Amber Cabiltes
Edgar Desher Empeño
Jose Lorenzo Mercado
Brendan Emmanuel Miranda
Jacobe Joaquin Sevilla