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Thursday, April 9, 2015

Philippine Economy is the Strongest in the World - Findings of Washington USA Think Tank



Philippines has most resilient economy – study


(CNN Philippines) — Should an economic crisis akin to last decade's Great Recession happen again, the Philippines would be the most "resilient" country and be able withstand it, despite its status as an emerging-market economy.

That's the assessment of Center for Global Development (CGD), a think tank based in Washington, D.C.

It's not that hard to imagine another financial crisis happening: Growth in China — the world's second largest economy — has slowed, the United States' bull market hasn't had a correction since 2011, and in the Eurozone, debt-ridden Greece has yet to strike a deal with its creditors.

Economist Liliana Rojas-Suarez of the CGD recently created a "resilience indicator" that measures the vulnerability of an economy to future financial shocks.

Her metric looks into several economic indicators that fall under two categories:
  • a country's ability to withstand external shocks 
  • government's ability to "rapidly" implement policies that counteract the effects of such shocks 
"I compare the values of the identified variables in 2007 (the preglobal financial crisis year) with the respective values at the end of 2014," she said.

Rojas-Suarez explained: "A country is said to be highly resilient to adverse external shocks if the event does not result in a sharp contractions of economic growth, a severe decline in the rate of growth of real credit and/or the emergence of deep instabilities in the financial sector."

Of the 21 countries she studied, Rojas-Suarez ranked the Philippines as the most resilient economy, ahead of South Korea and China, which fall at second and third, respectively.

Rojas-Suarez found that the Philippines posted a strong improvement in its indebtedness. The debt indicators had substantial influence over the country's ranking.

For example, she points out that the country cut in half its external debt to GDP ratio "from around 40 percent in 2007 to around 20 percent in 2014." This figure stands in stark contrast with most whose ratios are "without significant changes" within that same time period.

She also cites the country's lower government debt to GDP ratio which stood above 40% in 2007, and subsequently shrank to below that figure in 2014.

Likewise, the country also stood out because of its improved inflation performance in 2014 relative to 2007. Rojas-Suarez pointed out that inflation rates have been within the government's targets.

Latin American countries did not do well in the study: "Four of the six Latin American countries in the sample have deteriorated their positions in the ranking. This includes Argentina, which now holds the last position. "

Apart from "bad luck in terms of unfavorable trade," Rojas-Suarez explained that such countries ranked lower because of "the squandering of opportunity to implement needed reforms in the good post-crisis years."

Her study ultimately affirms a long-running cliché: An ounce of prevention is better than a pound of cure.

"Policy decisions taken in the precrisis period played a major role in explaining a country's macroeconomic performance during the global economic crisis (of last decade)," explained Rojas-Suarez.

"[I]nitial conditions at the onset of a severe adverse external shock matter a lot. The good news is that, besides the commodity price shock, the most feared external shock: a sudden rise in interest rates in the US has not (yet) materialized. Time is still on the side of emerging markets’ authorities." - CNN

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