Interesting Times

June 30, 2008 § 1 Comment

As we blame Sulpicio Lines for that sea disaster (the 5th time!),  the world waits for the announcement of the US Federal Reserve on the fate of the US economy. This Thursday, the Fed will announce the first quarter economic performance of the economy. This is quite important, since the Fed is also expected to announce the impact of rising crude prices, unemployment and food prices. Technically, the US is suffering a mild recession and it could worsen into a depression if left unchecked. 

What the US, and the rest of the world is most concerned about is the “free falling” state of global oil prices. Today, oil prices reached a ridiculous US$ 143/barrel, a US$ 3 rise from last week’s price. Markets reacted negatively, with the Dow Jones falling nearly 11 percentage points today. Speculations are rife that crude price could reach US$ 160/barrel, even if Saudi Arabia continues its plan to increase production.

Many analysts blame oil speculators for this rise in oil prices. Many even see these oil speculators using the “Global Warming” scare to justify the increase in fuel prices. With the purported “depletion” of oil reserves around the world, speculators have created a scenario where they justify oil as a threatened or “rare” commodity, hence, rising price of resources to satisfy demand. 

World leaders and CEOs are now meeting as we speak in Europe at the World Petroleum Conference. The meeting aims to address key issues such as this affecting the global oil economy. However, many are pessimistic since oil-producing countries such as Iraq continues to reject foreign oil contracts. Also, many oil companies have decreased oil exploration activities due to economic pressures. So, we may still expect oil prices to go up in the next few months. Analysts say, we would probably see a US$ 160-200/barrel price of crude in December 2008.

Analysts are also looking at the dismal performance of the job market in the US. Siemens, one of the world’s largest companies, have announced the lay off of more than a thousand workers. Other smaller and medium-sized companies have also announced job cuts. This could lead to a sharp rise in unemployment rates in the US, expected to double digit by mid-August. 

Lastly, inflation seems pretty vulnerable now with food prices reaching ridiculous levels. Analysts blame food speculators, even noting those based in the Philippines. A recent news report says that the Philippines actually created an artificial increase in the price of rice with its international bidding. Inflation could reach double digits for both the US and the Philippines by August or by mid-September. I am not surprised if it already reached double digits for the Philippines.

What government should do at this point is implement a contingency plan. Safety nets should be implemented to protect critical sectors of the economy. I believe the Philippine economy is not resilient enough to weather an Asian financial crisis similar to the late 80’s. If this is the case, then, short-term solutions should be done, like targetted financial assistance to would-be hardest hit sectors. Export industries are extremely vulnerable at this point and government should be particularly attentive to their needs. Likewise, manufacturing and the services sectors could also be affected by the worsening US recession. 

Lastly, government should fast-track the implementation of Salceda’s Noah’s Ark plan. Some of us would probably think this is just a dole-out, but a similar program succeeded in arresting the economic slide of Malaysia, Thailand and Singapore. Government should protect the further deteriorating state of almost 5 million poor families, especially in the National Capital Region (NCR) to (1) prevent social unrest caused by economic difficulties and (2) enable the economy to still float and survive this slowdown of the global economies.




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