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What co-op leaders can expect of Philippine economy in 2021

Posted January 26, 2021

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Banco de Oro Vice President for Investment Research & Strategy Anthony Emmanuel de Dios spoke at the NATCCO Managers’ Forum, giving the 397 co-op managers and staff in attendance a comprehensive picture of the Philippine economy in 2021:

  • Our GDP . . . only Government Spending is consistently up because they have to spend.  Industry, services, agriculture, exports are all negative.  Household consumption did not grow.
  • The prolonged lockdown lengthens recession nationwide.  The Philippines is among the hardest hit.
  • The reason recovery is difficult is because of the lack of activity due to lockdown.  Corporations have also cut their expansion by 30% and they are holding on to money.  Jollibee for instance, cannot do business – bawal ang mga bata.
  • On inflation, it is rising.  Crude oil prices are beginning to go up again.  Rice prices went down in 2019 is beginning to rise because of the impact of the numerous typhoons last year.
  • OFW remittances have contracted for the first time.  This never happened in 2007-08 and 1997-99.  Many OFWs are coming home and they are jobless.
  • Filipinos are indeed resilient.  Those that remain working abroad have doubled their remittances.
  • Foreign capital fled the country when Covid hit.  Only local investors have remained.  Foreign investors left in March last year.
  • Hopefully, we will be more attractive than the US market now that Trump has left.  During Trump’s time, he was spoiling the US companies with tax cuts.  So big businesses liked Trump.  With Trump gone, they expect tax cuts to go away.
  • Why will they come to us?  The CREATE Bill in Congress- corporate income tax rate will go down from 33% to 25% retroactive to July 2020.  By 2027 to 2032, it will go down 1% per year from 25% to only 20%.  11 years from now companies will pay only 20%.  That is the same as what Trump did in his four years that he lowered tax rates on corporate America.  I hope this sends a positive sign for foreign investors.
  • US companies left Philippines to go back to US because that is what Trump wanted.
  • Tourism will be the slowest industry to recover.  The Philippines is number 2 most dependent on tourism.  But COVID hit.  Many hotels are closing because there are no conventions, no tourists.
  • Peso has been the best performing currency in the region (versus the US Dollar). 
  • BPOs were not so much affected.  Remittances continue.  70% of what we consume is imported.  Import demand went down significantly and dollars went down as well because no imports.
  • Appreciation was 5.2%.  One US Dollar is now Php 48.
  • Increased government borrowing for COVID-19 Response.  Borrowing wll increase and GDP will shoot up to 58%. So interest rates will slightly go up this year.  The BSP has released a lot of money into circulation – but of course, they cannot do that for long.
  • Interest rates have gone down drastically in all tenors.
  • Philippine Stock Exchange index has recovered since April 20.  That is good from a long-term investors point of view.  It is now cheaper and time to buy stocks!  Investors always act ahead of developments.  They expect the vaccine rollout and thus, the economy will open up.   For those who are liquid, it’s time to buy.  The PSE Index went up from April to June. The Stock Market does not dwell on the past nor the present, but for the future speculation.
  • A risk we have to be aware of is if there is a resurgence of the covid.
  • From 80s to 90s, debt servicing took more than 30% of the budget.
  • We are better able to manage our loans.  Our infrastructure was not maintained at that time because all our money went to debt servicing.  That is why Sec Dominguez doesn’t want to give in to Bayanihan 3 and other Bills in Congress that will result in spending amounting to 1 Trillion pesos.  Where do we get that?  If we do that, our Debt to GDP will go back to 70% level.  That will result in higher interest rates – that will hit the private sector because they will be discouraged from borrowing for their business expansion.  Right now, BSP is lowering interest to encourage business operation/expansion.
  • Best is to 1) increase funding by collecting (but that is difficult) but there will have to be softer rates or longer terms.  Lenders must be sure of borrower’s credit worthiness.
  • Remember Monte de Piedad. It was a bank owned by the Catholic Church and it had a “social Mission”, so they lent to the poor who did not pay loans.  And now it is closed.  Maintain your credit risk evaluation standards and do not be blinded by social awareness.  Strike a fine balance.
  • Re-opening of economies, progress on a vaccine & higher gov’t spending are key catalysts for local equities

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  • #NATCCO #NATCCONETWORK #COOP #COOPERATIVE #CO-OP #KOOPERATIBA
  • Philippine economy in 2021

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