In our Viber exchanges, Marianne, a colleague, commented that the metal rodent of the Lunar New Year is biting its way this 2020. While Leo interjected that the flow of news, in January and this month has been mostly negative.
The consensus back in December, 2019, was that to the escalating US-China trade war was the major risk, after lasting almost two years. This, however, was nipped in the bud with the signing of a $200-billion trade deal package in middle of last month. The trade truce was a game changer in the economic relationship between the two nations. The cost benefit will trickle down to other economies.
However, the outbreak of the Wuhan coronavirus, downing scores of individuals in more than 25 countries, including the US and Europe, and causing the demise of over 500, has created a haze blurring the business horizon. Economic managers led by Finance Secretary Carlos “Sonny” G. Dominguez assuaged the concerns of everybody on the effect of the coronavirus, which could weigh down the domestic economic growth potential.
Suhaimi Ilias, chief economist of Maybank Kim Eng, took the same positive view of SecFin Sonny. All developments considered, Mr. Suhaimi said he was optimistic the country will post a “firmer growth” this year, largely fuelled by government spending through the “Build, Build, Build” program, provided government spending and infrastructure projects are accelerated with minimal institutional bottlenecks and red tapes.”
Other market analysts and market movers have varying degrees of disagreement. The up and down movements in equities market, which is mostly driven by the sell-off of offshore investors, is a barometer. Another indicator is the value of the local currency. The peso is fiercely fighting to stay below ₱51 mark to the green, despite the spike in January inflation to 4.4 percent.
At this perilous time, the impact of the coronavirus to the domestic economy is unquantifiable. For RCBC President Eugene Acevedo, the first quarter is a “crucial period.” The road ahead is currently invisible because of the haze arising from the epidemic, he said.
The challenge is how to calculate its cost to the domestic economy. BDO chief market analyst Jonas Ravelas summed it up thus: It’s “FOTU,” the Fear Of The Unknown. “Why are markets reacting so aggressively than they did in previous epidemics, than the seemingly very real risk of war in the Gulf a month ago. I think a big part of the answer is FOTU. Investors are well used to Iran-US tensions; but epidemics are more difficult to price in than the majority of risks. This is likely compounded by the reaction of the various governments which, as human lives are directly involved, tends to be based on the precautionary principle, given the limited understanding of the disease.”
While there’s agreement that the macroeconomic fundamentals will remain modestly stable, FOTU may spell the difference. This anxiety could drive businesses back to the drawing board for reevaluation.
As Simon Sinek wrote in his best selling book Start with Why, How Great Leaders Inspire to Take Action: “Deeply seated is our biological drive to survive. That emotion cannot be quickly wiped away by facts and figures.”
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