Additional OFW remittances to help families back home cope with higher consumer prices

Philippine consumer prices rose 4.6 percent in May, the fastest in four years, weighing on household expenditures. (Reuters)
Updated 05 June 2018

Additional OFW remittances to help families back home cope with higher consumer prices

DUBAI: Overseas Filipino workers should consider sending additional remittances back home as a temporary back-up for their families as they deal with elevated consumer prices, and the Philippine government’s refusal to rule out the possibility of steep price hikes until year end, a migrant labor expert said.
“The prices of commodities [in the Philippines], from food to fuel, have gone up so maybe OFWs should consider sending an additional 10 percent or even 20 percent to their families especially if they can afford to do so. Everything has gone up,” Emmanuel S. Geslani said in a telephone interview with Arab News.
“The increase in oil prices [on the world market] had a domino effect on the prices of consumer items, and adding financial pressure to OFW families as it is again enrolment season and they have to pay tuition fees for their kids who go to school,” Geslani added. “I know some OFWs may also be in a difficult situation in their workplaces, but for those who can afford to send additional support, maybe they should do so.”
The government on Tuesday said headline inflation rose 4.6 percent in May — versus 2.9 percent of the same month last year — driven mainly by price increases in fish and seafood, fuel and lubricants and bread and cereals. Average inflation during the five-month stretch was at 4.1 percent, just above the government’s 2 percent to 4 percent target for the year.
“The major catalysts include higher global crude oil prices at 3.5-year highs recently; the TRAIN Law that increased taxes on fuel and other goods and services; weaker peso exchange rate and higher local rice prices,” Michael L. Ricafort, head of the economics and industry research division at Rizal Commercial Banking Corporation, told Arab News. “These factors resulted in second-round inflation effects in terms of upward adjustments in the prices of affected goods and services.”
It is a bit of consolation though as Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines’ corporate research unit, expected last month’s consumer price basket to rise by 4.9 percent.
“However, it came in at 4.6 percent. Although it is the fastest in 4 years, it is still softer compared to expectations and slower than the previous months' expansions,” Asuncion said.
Legislators and vested groups have earlier called for the suspension of the Tax Reform for Acceleration and Inclusion law, which reduced personal income tax rates but raised the excise tax on petroleum products and automobiles, after crude oil price hit $80 a barrel in global trading and consumer prices spiked.
Their clamor was hinged on the notion that ultimately households were bearing the burden of TRAIN’s immediate effects on the economy. Previous surveys have estimated that one of every 10 Filipino households have at last one family member working overseas, whose cash remittances reached $28.1 billion in 2017.
The government economic team however was confident that inflation would taper off towards the end of 2018, even as it rejected the calls for the TRAIN law’s suspension.
“Though the 4.1 percent year-to-date inflation rate is slightly above the [government] target, we are still striking distance … there is no need to adjust inflation targets,” Benjamin E. Diokno, the secretary of budget and management, said during a press briefing on Tuesday. “There is consensus among the economic managers that inflation will taper off.”
“Suspending TRAIN and adopting other band-aid solutions will only have a minimal and short-term impact on inflation and will stifle our growth, further delaying our nation’s progress toward becoming an upper-middle-income country by 2019, such that around six million Filipinos would be lifted out of poverty by 2022,” Diokno added.
Still, both Asuncion and Ricafort see inflation rates to remain elevated for the most part of the year before reverting back to pre-TRAIN levels by 2019.
“Inflation could start to normalize lower in 2019, around January and February, exactly a year after the effectivity of the TRAIN Law,” Ricafort added.


IMF downgrades outlook for world economy, citing trade wars

Updated 15 October 2019

IMF downgrades outlook for world economy, citing trade wars

  • Growth this year will be ‘weakest since the 2008 financial crisis,’ according to 2020 forecast

WASHINGTON: The International Monetary Fund is further downgrading its outlook for the world economy, predicting that growth this year will be the weakest since the 2008 financial crisis primarily because of widening global conflicts.

The IMF’s latest World Economic Outlook foresees a slight rebound in 2020 but warns of threats ranging from heightened political tensions in the Middle East to the threat that the US and China will fail to prevent their trade war from escalating.

The updated forecast released on Tuesday was prepared for the autumn meetings this week of the 189-nation IMF and its sister lending organization, the World Bank. Those meetings and a gathering on Friday of finance ministers and central bankers of the world’s 20 biggest economies are expected to be dominated by efforts to de-escalate trade wars.

The new forecast predicts global growth of 3 percent this year, down a 0.2 percentage point from its previous forecast in July and sharply below the 3.6 percent growth of 2018. For the US this year, the IMF projects a modest 2.4 percent gain, down from 2.9 percent in 2018.

Next year, the fund foresees a rebound for the world economy to 3.4 percent growth but a further slowdown in the US to 2.1 percent, far below the 3 percent growth the Trump administration projects.

IMF economists cautioned that that even its projected modest gains might not be realized.

“With a synchronized slowdown and uncertain recovery, there is no room for policy mistakes, and an urgent need for policymakers to cooperatively de-escalate trade and geopolitical tensions,” Gita Gopinath, the IMF’s chief economist, said in the report.

Last week, the US and China reached a temporary cease-fire in their trade fight when President Trump agreed to suspend a tariff rise on $250 billion of Chinese products that was to take effect this week. But with no formal agreement reached and many issues to be resolved, further talks will be needed to achieve any breakthrough. The Trump administration’s threat to raise tariffs on an additional $160 billion in Chinese imports on Dec. 15 remains in effect.

The IMF’s forecast predicted that about half the increase in growth expected next year will result from recoveries in countries where economies slowed significantly this year, as in Mexico, India, Russia and Saudi Arabia.

This year’s slowdown, the IMF said, was caused largely by trade disputes, which resulted in higher tariffs being imposed on many goods. Growth in trade in the first half of this year slowed to 1 percent, the weakest annual pace since 2012.

Kristalina Georgieva, who will preside over her first IMF meetings after succeeding Christine Lagarde this month as the fund’s managing director, said last week that various trade disputes could produce a loss of about $700 billion in output by the end of next year or about 0.8 percent of world output.

IMF economists said that one worrying development is that the slowdown this year has occurred even as the Federal Reserve and other central banks have been cutting interest rates and deploying other means to bolster economies.

The IMF estimated that global growth would have been about one-half percentage point lower this year and in 2020 without the central banks’ efforts to ease borrowing rates. “With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot,” Gopinath said.

In addition to trade and geopolitical risks, the IMF envisions
threats arising from a potentially disruptive exit by Britain from the EU on Oct. 31. The IMF urged policymakers to intensify their efforts to avoid economically damaging mistakes.

“As policy priorities go, undoing the trade barriers put in place with durable agreements and reining in geopolitical tensions top the list,” Gopinath said. “Such actions can significantly boost confidence, rejuvenate investment, halt the slide in trade and manufacturing and raise world growth.”

The IMF projected that growth in the 19-nation euro area will
slow to 1.2 percent this year, after a 1.9 percent gain in 2018. It expects the pace to recover only slightly to 1.4 percent next year.

Growth in Germany, Europe’s biggest economy, is expected to be a modest 0.5 percent this
year before rising to 1.2 percent next year.

China’s growth is projected to dip to 6.1 percent this year and 5.8 percent next year. These would be the slowest rates since 1990, when China was hit by sanctions after the brutal crackdown on pro-democracy demonstrators in Beijing’s Tiananmen Square.