As the year is about to start, let me indulge you with my own analysis of the business environment that will we will be experiencing particularly for those living in Southeast Asia and most particularly for us in the Philippines. This will also involve some economics as this will affect businesses as well.
Let me just begin with the statement that no forecast is a perfect forecast, no matter how good a forecast or a forecaster is, there is no such thing as an absolute forecast. A forecast is only an aid to enable us to make good business decisions.
We will start off with the happenings in the world largest economy, the United States of America. As we all know the United States of America is facing a serious economic dilemma due to its sub prime mortgage problems. This problem has translated into slower jobs growth, shortage of business credit, and a decrease in industrial production among other things. The problem is so serious problem that even the White house has lowered its economic projections for 2008. Economic growth was insignificant during the past quarter. The only good thing that could happen to the United States is that it will not face a recession and that the sub-prime mortgage problem will subside by the first half of 2008 as some economist projected. The worst thing that could happen is that the United States would go into a recession if the problems won’t subside. The Feds has been cutting interest rates and will continue to cut interest rates to help ease the ailing economy.
How does this problem affect the rest of the world? Exports to the United States from some countries will ultimately slow down as the world’s largest economy is still nursing its wound. The economies of the affected countries will experience a slow down in exports especially if their export sector is mainly United States dependent. On the bright side as the feds continue to cut interest rates investors will continue to snub the United States and will most likely pour their investment into economies that will give them a more attractive return for their investments. The economies that will benefit from this are the strong emerging economies. These are the economies that exhibit successive positive growth and are forecasted to do so in the year 2008. Of worthy notice is the Asian economies most particularly China and India which is said to continue to lead the growth in the region. Economists are divided over what effect an ailing U.S economy have on Europe although majority says that the economic problems of the United States will not affect Europe much however growth will be not as strong as expected mainly due to slower exports.
The rising price of oil will continue to aggravate the situation in the United States and will also slow down the fast economic growth of emerging economies. Most likely, oil prices will continue to remain high and will experience several spikes through the year due to speculation, higher demand, lower supply, limited capacity, geopolitical concerns etc. For 2007 alone, oil rose from $50 per barrel last January to a record high of almost a $100 last November. This will continue to affect the rest of the world as the rising economies of the world are oil dependant. Just last Wednesday (January 3, 2008), the price of oil hit $100 a barrel for the first time in history. The search for alternative sources of energy will continue to expand in 2008 but is unlikely to have an effect on the looming oil problem as most alternative sources of energy still has to be implemented on a massive scale. As usual one economy’s poison may be another economy’s meat. Economic growth is expected in the Middle Due as oil prices continue to soar. The emerging oil producer, Africa will also benefit from this situation.
On the local scene, the Philippines will continue to lock in to its previous economic gains and will continue to experience strong growth. The economic boom is continued to be fueled by rising foreign investments, more growth in OFW remittances, more growth in the tourism sector and continued growth in exports mainly due to business process outsourcing. However this growth will be much slower considering the slowdown in the U.S economy and the strengthening of the Peso. The worst case scenario for exports is a flat growth. As more dollars are flowing into the country the Peso will continue to strengthen as expected. It will range somewhere between the P 35 to P 39 level within this year. This will be further aggravated by the fact that people are dumping more of their dollar investments and favoring the peso and other currencies. (So Dump your dollars now) The stock market is expected to hit the 4000+ level by the middle of this year. (So hold on to your stocks!) The sectors that will mostly enjoy the highest benefit from this economic growth are property, construction, mining and financial services.
The only factor that will dampen this growth is the rising oil prices and the occasional political bickering. Sad to say our country is more than 95 % foreign oil dependant. So if oil in the world market goes berserk, it will cause uncontrollable prices increases for us in the country. The oil problem will cause a slow but steady rise in the cost of doing business translating to the consumers paying more for good and services than they are used to. But I do not see any serious political turmoil that will happen in 2008. People are sick and tired of calls to unseat the president. For why should they? After all we are experiencing growth and will hopefully continue to do so.
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