What’s in a new year? New hopes. New beginnings. New resolutions. For me, it comes down to better tomorrows.
For those who may have just had a Rip Van Winkle episode or, perhaps, been a Cast Away like Tom Hanks in his movie, 2020 was such a torment. It started with a volcano eruption, was followed by a pandemic and various forms of community quarantine and punctuated by a series of super storms, for good measure. As the past year drew to a close, I shuddered to even think the question, “can it get any worse?”.
It’s now 2021. The economy is looking forward to a period of reawakening. Growth forecasts from a plethora of institutions place GDP expansion at anywhere between 4.5-9%. Businesses are definitely being allowed to re-open, albeit in measured steps.
The government is ramping up infrastructure spending. Their build-build-build programs are moving into hyper gear. Private enterprise is stepping-up its projects in roads, tollways, bridges, ports and airports.
The Philippine peso is expected to remain strong. Remittances by Overseas Filipino Workers (OFW) are seen to increase. Inflation, while expected to rise, is still forecasted to be in the benign range. The Purchasing Manager’s Index (PMI) has topped the all-important 50-point mark, heralding a return of manufacturing activity.
Most importantly, consumer confidence is on the mend. This is critical to unlocking personal consumption expenditures which is the backbone of the economy. It’s what helped save us from the meltdown of the Lehman financial crisis in 2008.
Part of the return in consumer confidence comes from the increasing number of vaccines against COVID-19. Pfizer, Moderna, Astra Zeneca and Sinovac have all received emergency use authorization from the Food and Drug Administration in their respective home countries. The focus has now shifted from can we find a vaccine to when and how it can be distributed.
The outlook is sounding ever better already.
In the automotive industry, the year ended with sales of 242,000, a drop of 41% versus 2019. The good news is that the decline in sales in the last quarter was less than the annual percentage, somewhere in the range of 30% against the same months of 2019. This indicates that the market is gradually starting its recovery.
This is the much needed turn around that the industry has been hoping for. If we extrapolate the monthly sales average in the fourth quarter of 2020 into 2021, sales can be seen to reach 300,000 units, up 24% from last year. Although this is still 27% lower than 2019, it is a significant bump over the last 12 months.
The recovery of the automotive sector is a significant contributor to economic recovery in the country. The number of jobs it provides, the taxes and revenues it pays to the government, the exports it produces and the technology transfer that it enables are all key drivers of the economy.
The government estimated that the automotive industry employed 340,000 people back in 2014. Given the period of rapid growth of the auto market until 2017, this could have peaked at an even higher number. Toyota alone claims that it employs 55,000 Filipinos throughout its supply chain. Moreover, the economic linkages of the automotive sector are extensive. The ripple effect of every car produced is significant. At a time when government spending for the Covid crisis is reaching untold proportions, the contributions of the industry to national coffers is much needed.
It is important that the automotive industry be given a fighting chance to regain its footing. Hopefully, as economic activity starts to climb, demand for vehicles will also return at a faster pace. Capital expenditures by the corporate sector have been suspended for the most part and an improvement in business may release this pent-up demand.
The return of banks to auto loans is also another significant factor in the auto market recovery. Understandably, financial institutions have had to take a conservative position in the light of the uncertainties wrought by the pandemic. With the dust settling and the fall-out more apparent, an increase in the appetite of banks for lending will help tremendously in stepping-up sales.
Additionally, the start of spending leading towards the 2022 elections could also be another stimulus to demand for autos.
There are downsides, of course. Most important is if there might be a second wave of Covid infections in light of the newly developing strains. Hopefully, the timely arrival of vaccines will nip this in the bud. Another is the recently announced imposition of provisional duties onimported motor vehicles. This may potentially lead to price increases that may, in turn, dampen demand. Finally, there is the added uncertainty brought about by the twists and turns in the global economy and the impact on trade.
There is much to look forward to in 2021. Let’s hope it truly is a better year. In the end, though, it will only be as good as we make it.