RECENT NEWS
Philippines: FDI
FDI inflows fall to 5-month low in June
In June, Foreign Direct Investment (FDI) inflows to the Philippines fell by 3.9% to $484 million, marking a five-month low. This decline is primarily due to concerns about the country's slowing economic growth, elevated inflation, and high interest rates. Nonresidents reduced their investments in equity capital and reinvestment of earnings, with equity capital placements declining by 8% and reinvestment of earnings dropping by 26.8% year-on-year. Most of the equity capital came from Japan, the United States, and Singapore, mainly in manufacturing, real estate, and communication sectors. Investments in equity and investment fund shares also declined by 19.2%. Conversely, nonresidents increased their investments in debt instruments of local affiliates by 11% in June, signaling a preference for debt investments amid economic uncertainties. The sluggish GDP growth rate, reaching 4.3% in the second quarter, further deterred FDI. For the first half of the year, FDI net inflows dropped by 20.4% to $3.9 billion compared to the previous year.
Source: BusinessWorld Online. (2023, September 12). FDI inflows fall to 5-month low in June.
FDI inflows fall to 5-month low in June
In June, Foreign Direct Investment (FDI) inflows to the Philippines fell by 3.9% to $484 million, marking a five-month low. This decline is primarily due to concerns about the country's slowing economic growth, elevated inflation, and high interest rates. Nonresidents reduced their investments in equity capital and reinvestment of earnings, with equity capital placements declining by 8% and reinvestment of earnings dropping by 26.8% year-on-year. Most of the equity capital came from Japan, the United States, and Singapore, mainly in manufacturing, real estate, and communication sectors. Investments in equity and investment fund shares also declined by 19.2%. Conversely, nonresidents increased their investments in debt instruments of local affiliates by 11% in June, signaling a preference for debt investments amid economic uncertainties. The sluggish GDP growth rate, reaching 4.3% in the second quarter, further deterred FDI. For the first half of the year, FDI net inflows dropped by 20.4% to $3.9 billion compared to the previous year.
Source: BusinessWorld Online. (2023, September 12). FDI inflows fall to 5-month low in June.
Philippines: Policy Rates
Remolona sees no need for rate hike if there are no new supply shocks
The Bangko Sentral ng Pilipinas (BSP) is not inclined to resume monetary tightening unless there are further supply shocks, according to BSP Governor Eli M. Remolona, Jr. He stated that the recent uptick in August inflation, which reached an annual 5.3%, was driven by supply shocks in food and fuel. If no additional shocks occur, it would not necessitate a policy rate hike. Despite inflation exceeding the BSP’s 2-4% target range for 17 consecutive months, Remolona expects to reach the target range by October if there are no further shocks. However, he emphasized the importance of staying comfortably within the range for the year. The BSP forecasts 5.6% inflation in 2023, gradually easing to 3.3% in 2024 and 3.5% in 2025. Analysts expect the BSP to maintain its current stance despite the quicker inflation in August. They anticipate that inflation will settle within the target range by the end of the year, potentially allowing the Monetary Board to consider rate cuts in early 2024. The BSP’s upcoming policy-setting meeting on September 21 will consider factors like inflation, economic growth, and external conditions. The recent uptick in inflation alone is unlikely to prompt the BSP to resume tightening, as it's primarily supply-side in nature, and non-monetary measures are considered more appropriate for addressing it.
Source: BusinessWorld Online. (2023, September 15). Remolona sees no need for rate hike if there are no new supply shocks.
Remolona sees no need for rate hike if there are no new supply shocks
The Bangko Sentral ng Pilipinas (BSP) is not inclined to resume monetary tightening unless there are further supply shocks, according to BSP Governor Eli M. Remolona, Jr. He stated that the recent uptick in August inflation, which reached an annual 5.3%, was driven by supply shocks in food and fuel. If no additional shocks occur, it would not necessitate a policy rate hike. Despite inflation exceeding the BSP’s 2-4% target range for 17 consecutive months, Remolona expects to reach the target range by October if there are no further shocks. However, he emphasized the importance of staying comfortably within the range for the year. The BSP forecasts 5.6% inflation in 2023, gradually easing to 3.3% in 2024 and 3.5% in 2025. Analysts expect the BSP to maintain its current stance despite the quicker inflation in August. They anticipate that inflation will settle within the target range by the end of the year, potentially allowing the Monetary Board to consider rate cuts in early 2024. The BSP’s upcoming policy-setting meeting on September 21 will consider factors like inflation, economic growth, and external conditions. The recent uptick in inflation alone is unlikely to prompt the BSP to resume tightening, as it's primarily supply-side in nature, and non-monetary measures are considered more appropriate for addressing it.
Source: BusinessWorld Online. (2023, September 15). Remolona sees no need for rate hike if there are no new supply shocks.
Philippines: Inflation
Philippines considers lower rice tariffs as inflation quickens
The Philippine government is considering reducing its rice import tariffs to reduce food inflation in the Philippines. Rice prices have become more volatile recently due to extreme weather conditions. India has also restricted its export of non-basmati white rice. In its place, Vietnam has started to export more rice across Asia. The Philippine inflation rate, 5.3%, has exceeded the government’s target of 2-4%. Rice inflation in particular has grown from 4.2% in July to 8.7% in August. Economists, such as Nicholas Mapa from ING, have noted that the reduction of rice tariffs will alleviate inflation pressures but will also put pressure on local rice producers to sell rice below their operating costs. The price ceiling is expected to freeze rice price growth for September, but economists such as Domini Velasquez note that beyond September, it might not be possible to enforce it. Pressures from grain and oil prices will continue to push up inflation. Additionally, local rice retailers have announced that they will sell rice above the government’s price ceiling to avoid potential losses in revenue.
Source: Nikkei Asia. (2023, September 5). Philippines considers lower rice tariffs as inflation quickens.
Philippines considers lower rice tariffs as inflation quickens
The Philippine government is considering reducing its rice import tariffs to reduce food inflation in the Philippines. Rice prices have become more volatile recently due to extreme weather conditions. India has also restricted its export of non-basmati white rice. In its place, Vietnam has started to export more rice across Asia. The Philippine inflation rate, 5.3%, has exceeded the government’s target of 2-4%. Rice inflation in particular has grown from 4.2% in July to 8.7% in August. Economists, such as Nicholas Mapa from ING, have noted that the reduction of rice tariffs will alleviate inflation pressures but will also put pressure on local rice producers to sell rice below their operating costs. The price ceiling is expected to freeze rice price growth for September, but economists such as Domini Velasquez note that beyond September, it might not be possible to enforce it. Pressures from grain and oil prices will continue to push up inflation. Additionally, local rice retailers have announced that they will sell rice above the government’s price ceiling to avoid potential losses in revenue.
Source: Nikkei Asia. (2023, September 5). Philippines considers lower rice tariffs as inflation quickens.
Philippines: Conglomerates
Aboitiz unit expects artificial intelligence to bring more jobs
David R. Hardoon, CEO of Aboitiz Data Innovation Pte. Ltd. (ADI), reassures that Artificial Intelligence (AI) will not replace jobs in the Philippines but rather enhance the workforce. He emphasizes the critical role of humans in leveraging AI's capabilities, stating that AI is about knowledge and providing information. ADI, headquartered in Singapore, is the data innovation arm of Aboitiz Equity Ventures, Inc. Hardoon believes that data and technology will not lead to fewer jobs but will create new opportunities in unexplored domains. He highlights AI's application in various sectors, such as using AI-powered asset inspection for power plants. Additionally, AI is utilized in financial units to identify risks through alternative data. Hardoon's remarks reflect a positive outlook on AI integration, emphasizing its potential to augment human capabilities rather than replace them.
Source: BusinessWorld Online. (2023, September 15). Aboitiz unit expects artificial intelligence to bring more jobs.
Aboitiz unit expects artificial intelligence to bring more jobs
David R. Hardoon, CEO of Aboitiz Data Innovation Pte. Ltd. (ADI), reassures that Artificial Intelligence (AI) will not replace jobs in the Philippines but rather enhance the workforce. He emphasizes the critical role of humans in leveraging AI's capabilities, stating that AI is about knowledge and providing information. ADI, headquartered in Singapore, is the data innovation arm of Aboitiz Equity Ventures, Inc. Hardoon believes that data and technology will not lead to fewer jobs but will create new opportunities in unexplored domains. He highlights AI's application in various sectors, such as using AI-powered asset inspection for power plants. Additionally, AI is utilized in financial units to identify risks through alternative data. Hardoon's remarks reflect a positive outlook on AI integration, emphasizing its potential to augment human capabilities rather than replace them.
Source: BusinessWorld Online. (2023, September 15). Aboitiz unit expects artificial intelligence to bring more jobs.
Climate Change
G20 summit agrees on words but struggles on action
The recent G20 summit in New Delhi achieved a significant compromise on the Ukraine conflict but fell short on addressing other global financial issues. While the inclusion of the African Union as a new member marked a victory for India and developing economies, overall outcomes disappointed observers who stressed the G20's role in tackling major global challenges. The summit declaration refrained from condemning Russia over Ukraine but emphasized the human suffering and discouraged the use of force to acquire territory. This consensus was unexpected given the G20's prior struggles to agree on various issues linked to the war. Failing to reach a summit declaration consensus could have signaled a split within the G20, potentially rendering it irrelevant as China and Russia push to reshape the global order. Over time, the G20's primary role in coordinating economic responses has weakened due to the need for consensus.. The 2023 summit involved extended negotiations, underscoring the forum's ineffectiveness in making concrete decisions on pressing global issues. Though the summit did agree to triple global renewable energy capacity by 2030 and phase out unabated coal power, it did not set a specific timeline. Addressing the debt vulnerabilities of poor countries and reforming multilateral development banks lacked clear objectives. Despite limited progress, the summit's ability to find acceptable language on Ukraine underscored the G20's enduring relevance.
Source: Reuters. (2023, September 11). G20 summit agrees on words but struggles on action.
G20 summit agrees on words but struggles on action
The recent G20 summit in New Delhi achieved a significant compromise on the Ukraine conflict but fell short on addressing other global financial issues. While the inclusion of the African Union as a new member marked a victory for India and developing economies, overall outcomes disappointed observers who stressed the G20's role in tackling major global challenges. The summit declaration refrained from condemning Russia over Ukraine but emphasized the human suffering and discouraged the use of force to acquire territory. This consensus was unexpected given the G20's prior struggles to agree on various issues linked to the war. Failing to reach a summit declaration consensus could have signaled a split within the G20, potentially rendering it irrelevant as China and Russia push to reshape the global order. Over time, the G20's primary role in coordinating economic responses has weakened due to the need for consensus.. The 2023 summit involved extended negotiations, underscoring the forum's ineffectiveness in making concrete decisions on pressing global issues. Though the summit did agree to triple global renewable energy capacity by 2030 and phase out unabated coal power, it did not set a specific timeline. Addressing the debt vulnerabilities of poor countries and reforming multilateral development banks lacked clear objectives. Despite limited progress, the summit's ability to find acceptable language on Ukraine underscored the G20's enduring relevance.
Source: Reuters. (2023, September 11). G20 summit agrees on words but struggles on action.
European Union: Economic Growth
EU Commission cuts euro zone growth forecast as Germany in recession
The European Commission revised its growth forecasts for the euro zone economy, citing slower growth in consumer demand due to high inflation and Germany slipping into recession. The Commission now predicts that the euro zone's GDP will expand by 0.8% in 2023 and 1.3% in 2024, down from previous forecasts of 1.1% and 1.6%, respectively. Weakness in domestic demand, especially in consumption, is attributed to persistently high consumer prices, despite declining energy costs and a robust labor market with low unemployment and rising wages. Inflation in the euro zone is expected to reach 5.6% in 2023 and 2.9% in 2024, significantly above the European Central Bank's target of 2.0%. The Commission notes that the ECB's tightening monetary policy starting in mid-2022 has contributed to the economic slowdown. Survey indicators indicate a slowdown in economic activity, particularly in industry and services, despite a strong tourism season in parts of Europe. Germany, the largest Eurozone economy, is forecasted to shrink by 0.4% in 2023, and its growth in 2024 will be slower than previously expected at 1.1%. Italy and the Netherlands are also expected to experience slower growth in 2023, while France and Spain are projected to grow faster than previously anticipated in the same year.
Source: Reuters. (2023, September 11). EU Commission cuts euro zone growth forecast as Germany in recession.
EU Commission cuts euro zone growth forecast as Germany in recession
The European Commission revised its growth forecasts for the euro zone economy, citing slower growth in consumer demand due to high inflation and Germany slipping into recession. The Commission now predicts that the euro zone's GDP will expand by 0.8% in 2023 and 1.3% in 2024, down from previous forecasts of 1.1% and 1.6%, respectively. Weakness in domestic demand, especially in consumption, is attributed to persistently high consumer prices, despite declining energy costs and a robust labor market with low unemployment and rising wages. Inflation in the euro zone is expected to reach 5.6% in 2023 and 2.9% in 2024, significantly above the European Central Bank's target of 2.0%. The Commission notes that the ECB's tightening monetary policy starting in mid-2022 has contributed to the economic slowdown. Survey indicators indicate a slowdown in economic activity, particularly in industry and services, despite a strong tourism season in parts of Europe. Germany, the largest Eurozone economy, is forecasted to shrink by 0.4% in 2023, and its growth in 2024 will be slower than previously expected at 1.1%. Italy and the Netherlands are also expected to experience slower growth in 2023, while France and Spain are projected to grow faster than previously anticipated in the same year.
Source: Reuters. (2023, September 11). EU Commission cuts euro zone growth forecast as Germany in recession.
China: Deflation
China's deflation pressures ease, more steps expected to spur demand
In August, China's consumer prices inched into positive territory, marking a 0.1% year-on-year increase, as deflationary pressures eased amid signs of economic stabilization. However, analysts suggest that more policy support is required to boost consumer demand, given a slowing labor market recovery and uncertain household income expectations. The consumer price index (CPI) for August was slower than expected, with a median estimate of 0.2% in a Reuters poll. Core inflation, excluding food and fuel prices, remained unchanged at 0.8%. On the other hand, the producer price index (PPI) declined by 3.0% year-on-year in August suggesting a slow and moderate recovery in factory prices. Analysts emphasize that despite these improvements in inflation and factory prices, weak demand persists, requiring ongoing policy support. Food prices fell 1.7% year-on-year, while non-food costs rose by 0.5%, mainly due to increased tourism-related expenses. To bolster economic growth, China implemented various measures, including mortgage rate cuts and easing borrowing rules. There is speculation that the central bank may continue to cut interest rates and bank reserve requirements. Premier Li Qiang remains optimistic about achieving China's 2023 growth target of around 5%, but some analysts are less confident due to challenges such as a property market slump, weak consumer spending, and declining credit growth.
Source: Reuters. (Date). China's deflation pressures ease, more steps expected to spur demand.
China's deflation pressures ease, more steps expected to spur demand
In August, China's consumer prices inched into positive territory, marking a 0.1% year-on-year increase, as deflationary pressures eased amid signs of economic stabilization. However, analysts suggest that more policy support is required to boost consumer demand, given a slowing labor market recovery and uncertain household income expectations. The consumer price index (CPI) for August was slower than expected, with a median estimate of 0.2% in a Reuters poll. Core inflation, excluding food and fuel prices, remained unchanged at 0.8%. On the other hand, the producer price index (PPI) declined by 3.0% year-on-year in August suggesting a slow and moderate recovery in factory prices. Analysts emphasize that despite these improvements in inflation and factory prices, weak demand persists, requiring ongoing policy support. Food prices fell 1.7% year-on-year, while non-food costs rose by 0.5%, mainly due to increased tourism-related expenses. To bolster economic growth, China implemented various measures, including mortgage rate cuts and easing borrowing rules. There is speculation that the central bank may continue to cut interest rates and bank reserve requirements. Premier Li Qiang remains optimistic about achieving China's 2023 growth target of around 5%, but some analysts are less confident due to challenges such as a property market slump, weak consumer spending, and declining credit growth.
Source: Reuters. (Date). China's deflation pressures ease, more steps expected to spur demand.
Vietnam: Supply Chains
Vietnam's factory doldrums show limits of shift out of China
The slump in global demand has depressed factory output in Vietnam. The move to shift supply chains out of China has not shown as many benefits for Vietnam as were expected. Shipments of exports of electronics and textiles from Vietnam have shrunk by 10%, unlike the 17% growth observed last year. Exports for Vietnamese goods have shrunk consistently for eight months; its longest slump in over ten years. Concurrently, Vietnamese manufacturers are reducing their staff at a time when they would typically be hiring more for Christmas orders. This has pushed 300,000 Vietnamese out of manufacturing jobs and into fishing, farming, or cleaning households. Businesses are holding back and waiting for a positive outlook from the market. Like in 2022, more people are purchasing services instead of goods and Vietnam still faces an inventory glut for goods in 2023. Whilst Vietnam maintains an oversupply of goods, analysts expect these stocks to be sold within the next few months. In addition to a gradual return of global demand, analysts expect that Washington’s plans to fund rare earth mineral extraction in Vietnam along with the opening of new semiconductor factories should help
Source: Nikkei Asia. (2023, September 15). Vietnam's factory doldrums show limits of shift out of China.
Vietnam's factory doldrums show limits of shift out of China
The slump in global demand has depressed factory output in Vietnam. The move to shift supply chains out of China has not shown as many benefits for Vietnam as were expected. Shipments of exports of electronics and textiles from Vietnam have shrunk by 10%, unlike the 17% growth observed last year. Exports for Vietnamese goods have shrunk consistently for eight months; its longest slump in over ten years. Concurrently, Vietnamese manufacturers are reducing their staff at a time when they would typically be hiring more for Christmas orders. This has pushed 300,000 Vietnamese out of manufacturing jobs and into fishing, farming, or cleaning households. Businesses are holding back and waiting for a positive outlook from the market. Like in 2022, more people are purchasing services instead of goods and Vietnam still faces an inventory glut for goods in 2023. Whilst Vietnam maintains an oversupply of goods, analysts expect these stocks to be sold within the next few months. In addition to a gradual return of global demand, analysts expect that Washington’s plans to fund rare earth mineral extraction in Vietnam along with the opening of new semiconductor factories should help
Source: Nikkei Asia. (2023, September 15). Vietnam's factory doldrums show limits of shift out of China.
China: Growth prospects
Does China face a lost decade?
Is China's current economic situation like Japan's post-bubble era? Not entirely. Concerns are raised about China's mounting corporate debt, declining property values, and a slowdown in credit expansion. However, crucial distinctions arise. Much of China's corporate debt is concentrated in state-owned enterprises, which have the capacity to borrow and spend with government backing. While private property developers are reducing liabilities due to plummeting real estate prices, this appears to be a rational response. The end of China's property boom has led to reduced household wealth, potentially fostering conservative spending habits. Notably, household debts in relation to assets remain relatively low. Mortgage prepayments are seen as a pragmatic reaction to changing interest rates. The article contends that, although parallels exist, China's situation isn't an exact replica of Japan's. It suggests that if the private sector doesn't ramp up spending, the government should step in to counter surpluses. Regrettably, Chinese authorities have been hesitant to do so, potentially exacerbating the situation. The article emphasizes that China's budget deficit has tightened this year, which might exacerbate the economic downturn. It argues that if the government delays fiscal spending, it may ultimately need to allocate more resources. The irony lies in the fact that China's risk of sliding into a prolonged recession is not due to private sector efforts to rectify their finances, but rather because the government is hesitant to take a more active role.
Source: The Economist. (2023, September 10). Does China face a lost decade?
Does China face a lost decade?
Is China's current economic situation like Japan's post-bubble era? Not entirely. Concerns are raised about China's mounting corporate debt, declining property values, and a slowdown in credit expansion. However, crucial distinctions arise. Much of China's corporate debt is concentrated in state-owned enterprises, which have the capacity to borrow and spend with government backing. While private property developers are reducing liabilities due to plummeting real estate prices, this appears to be a rational response. The end of China's property boom has led to reduced household wealth, potentially fostering conservative spending habits. Notably, household debts in relation to assets remain relatively low. Mortgage prepayments are seen as a pragmatic reaction to changing interest rates. The article contends that, although parallels exist, China's situation isn't an exact replica of Japan's. It suggests that if the private sector doesn't ramp up spending, the government should step in to counter surpluses. Regrettably, Chinese authorities have been hesitant to do so, potentially exacerbating the situation. The article emphasizes that China's budget deficit has tightened this year, which might exacerbate the economic downturn. It argues that if the government delays fiscal spending, it may ultimately need to allocate more resources. The irony lies in the fact that China's risk of sliding into a prolonged recession is not due to private sector efforts to rectify their finances, but rather because the government is hesitant to take a more active role.
Source: The Economist. (2023, September 10). Does China face a lost decade?
Gulf States
The Gulf’s boundless ambition to change the world
The Gulf economies, fuelled by surging oil prices, are experiencing a transformative phase with a $3.5 trillion investment in various sectors. Diplomatically, Saudi Arabia and Iran are navigating towards détente, while conflicts in Syria and Yemen show signs of de-escalation. This shift marks a new chapter in the Middle East, offering fresh opportunities and challenges. The region is increasingly taking charge of its security, and trade patterns are diversifying, with 26% of exports going to China and India. The energy transition is driving the Gulf to boost fossil fuel production before demand wanes, emphasizing economic diversification. Public sentiment favors economic opportunity over political experiments, and less Western involvement reduces pressure for human rights and democracy. Despite ambitious projects like the NEOM city, substantial changes are underway, including increased female workforce participation and a growing non-oil economy. The region must address challenges like autocratic rule decay, nuclear proliferation, climate change, and economic disparities. The Gulf and Israel, though accounting for only 14% of the population, constitute 60% of GDP, underscoring the region's uneven development. Lebanon and Egypt face financial crises, highlighting the region's stark economic disparities. The Middle East's transformation holds global implications, underlining its role as an economic and political laboratory.
Source: The Economist. (2023, September 7). The Gulf’s boundless ambition to change the world.
The Gulf’s boundless ambition to change the world
The Gulf economies, fuelled by surging oil prices, are experiencing a transformative phase with a $3.5 trillion investment in various sectors. Diplomatically, Saudi Arabia and Iran are navigating towards détente, while conflicts in Syria and Yemen show signs of de-escalation. This shift marks a new chapter in the Middle East, offering fresh opportunities and challenges. The region is increasingly taking charge of its security, and trade patterns are diversifying, with 26% of exports going to China and India. The energy transition is driving the Gulf to boost fossil fuel production before demand wanes, emphasizing economic diversification. Public sentiment favors economic opportunity over political experiments, and less Western involvement reduces pressure for human rights and democracy. Despite ambitious projects like the NEOM city, substantial changes are underway, including increased female workforce participation and a growing non-oil economy. The region must address challenges like autocratic rule decay, nuclear proliferation, climate change, and economic disparities. The Gulf and Israel, though accounting for only 14% of the population, constitute 60% of GDP, underscoring the region's uneven development. Lebanon and Egypt face financial crises, highlighting the region's stark economic disparities. The Middle East's transformation holds global implications, underlining its role as an economic and political laboratory.
Source: The Economist. (2023, September 7). The Gulf’s boundless ambition to change the world.
India
Modi’s “one India” goal is good for the economy, but not for politics
Indian Prime Minister Narendra Modi's pursuit of "one India" to centralize power raises concerns. While India shines on the global stage with achievements like lunar missions and robust GDP growth, domestically, Modi's efforts to strengthen national politics and the central government at the expense of state autonomy are questioned. The proposal involves synchronizing state and national elections, potentially consolidating voting events every five years. This move, viewed as a power grab, could disrupt the delicate balance between the center and India's 28 states, especially those not governed by Modi's party. Although a unified India makes economic sense, streamlining local markets and taxes through reforms like the national goods-and-services tax, there are associated risks. Modi might be tempted to bypass constitutional processes, potentially leading to regional tensions and division. Such fragmentation is perilous in diverse India with numerous languages and religions, especially as the southern region outpaces the north economically. As constituency boundaries are revised after 2026, the north may gain parliamentary seats, while the south, with lower birth rates, could lose representation. Skillful management is vital to prevent unrest and preserve the federal system, which fosters flexibility and cooperation. Modi's landmark tax reform, the GST, was achieved through extensive negotiations with states, demonstrating the importance of consensus-building in constitutional reforms. Political federalism isn't a hindrance but a prerequisite for India's aspiration to become a global power.
Source: The Economist. (2023, September 14). Modi’s “one India” goal is good for the economy, but not for politics.
Modi’s “one India” goal is good for the economy, but not for politics
Indian Prime Minister Narendra Modi's pursuit of "one India" to centralize power raises concerns. While India shines on the global stage with achievements like lunar missions and robust GDP growth, domestically, Modi's efforts to strengthen national politics and the central government at the expense of state autonomy are questioned. The proposal involves synchronizing state and national elections, potentially consolidating voting events every five years. This move, viewed as a power grab, could disrupt the delicate balance between the center and India's 28 states, especially those not governed by Modi's party. Although a unified India makes economic sense, streamlining local markets and taxes through reforms like the national goods-and-services tax, there are associated risks. Modi might be tempted to bypass constitutional processes, potentially leading to regional tensions and division. Such fragmentation is perilous in diverse India with numerous languages and religions, especially as the southern region outpaces the north economically. As constituency boundaries are revised after 2026, the north may gain parliamentary seats, while the south, with lower birth rates, could lose representation. Skillful management is vital to prevent unrest and preserve the federal system, which fosters flexibility and cooperation. Modi's landmark tax reform, the GST, was achieved through extensive negotiations with states, demonstrating the importance of consensus-building in constitutional reforms. Political federalism isn't a hindrance but a prerequisite for India's aspiration to become a global power.
Source: The Economist. (2023, September 14). Modi’s “one India” goal is good for the economy, but not for politics.
Unemployment
Why Higher Unemployment Is Good News Now
Generally, rising unemployment is not a positive indicator for the performance of an economy. However, with regards to inflation reduction policy, rising unemployment is a sign of reduced inflation pressures. The Wall Street Journal illustrates this through current US economic inflation. The importance of the weakening of the labor market is explained by focusing more on underlying inflation, the inflation rate when one removes the effects of shocks from volatile changes in prices from say grains or oil. Underlying inflation is dictated more by the total supply and demand of an economy. Assuming that US inflation falls to 2%, it is unlikely that it will stay there given low unemployment or full employment since wages may rise and that could lead to higher spending. Therefore, the recent growth of US unemployment to 3.8% should help the Federal Reserve reach and maintain its 2% inflation rate target. US GDP growth of 2.1% would appear to contradict the rise in unemployment in 2023’s second quarter with consumer spending also growing at 3%. The WSJ points out that it is important to consider the income method for measuring output. After adjusting for inflation, one can observe that GDP has grown by 2.5% in the past year, whereas GDI (Gross Domestic Income) has fallen by 0.5%. The gap is explained by falling Federal Reserve profits and stagnant sales for businesses. While output (GDP) is growing, the fall in GDI suggests that there is a slack in the economy instead of a recession. Should unemployment continue to rise, then it may lead to a recession. Additionally, should inflation stay within 3-4%, the Fed may be forced to further raise interest rates and induce a recession.
Source: The Wall Street Journal. (2023, September 7). Why Higher Unemployment Is Good News Now.
Contributors:
Natasha Amber Cabiltes
Edgar Desher Empeño
Jose Lorenzo Mercado
Brendan Emmanuel Miranda
Jacobe Joaquin Sevilla
Why Higher Unemployment Is Good News Now
Generally, rising unemployment is not a positive indicator for the performance of an economy. However, with regards to inflation reduction policy, rising unemployment is a sign of reduced inflation pressures. The Wall Street Journal illustrates this through current US economic inflation. The importance of the weakening of the labor market is explained by focusing more on underlying inflation, the inflation rate when one removes the effects of shocks from volatile changes in prices from say grains or oil. Underlying inflation is dictated more by the total supply and demand of an economy. Assuming that US inflation falls to 2%, it is unlikely that it will stay there given low unemployment or full employment since wages may rise and that could lead to higher spending. Therefore, the recent growth of US unemployment to 3.8% should help the Federal Reserve reach and maintain its 2% inflation rate target. US GDP growth of 2.1% would appear to contradict the rise in unemployment in 2023’s second quarter with consumer spending also growing at 3%. The WSJ points out that it is important to consider the income method for measuring output. After adjusting for inflation, one can observe that GDP has grown by 2.5% in the past year, whereas GDI (Gross Domestic Income) has fallen by 0.5%. The gap is explained by falling Federal Reserve profits and stagnant sales for businesses. While output (GDP) is growing, the fall in GDI suggests that there is a slack in the economy instead of a recession. Should unemployment continue to rise, then it may lead to a recession. Additionally, should inflation stay within 3-4%, the Fed may be forced to further raise interest rates and induce a recession.
Source: The Wall Street Journal. (2023, September 7). Why Higher Unemployment Is Good News Now.
Contributors:
Natasha Amber Cabiltes
Edgar Desher Empeño
Jose Lorenzo Mercado
Brendan Emmanuel Miranda
Jacobe Joaquin Sevilla