Tuesday, January 08, 2008

Economic Forecast For 2008

By Zigfred Diaz

As the year is about to start, let me indulge you with my own economic analysis for this year.

Let us begin by looking at the events in the world largest economy, the United States of America. It is of public knowledge that the United States is facing a serious economic problem due the sub prime mortgage crises. This problem has resulted to slower jobs growth, shortage of business credit, and a decrease in industrial production among other things. Because of this, the White house has lowered its economic projections for 2008. Economic growth was very slow during the past quarter. If things will turn out for the better, the best thing that could happen to the United States is that it will not face a recession and that the sub-prime mortgage problem will slowly grind to a halt by the first half of 2008 as projected by some economist. The worst case scenario would be that the United States would go into a recession.

What is the impact of this problem to the rest of the world? Exports by other countries to the United States will slow down because of the economic problems they are facing. The positive thing about this is that as the Feds continue to cut interest rates, investors will instead pour their investment into economies that will give them a more attractive return. Strong emerging economies like China and India, which are said to continue to lead the growth in the Asian region are most likely to benefit from this. Most economist say that Europe will not be affected so much by the economic problems of the United States however a slow down in Europe's exports will temper its growth.

Due to a lot of factors such as speculation, higher demand, lower supply, limited capacity, geopolitical concerns and other concerns, it is most likely that oil prices will continue to remain high and will experience several spikes this year. In the early part of last year, oil prices soared from $50 per barrel and almost almost reaching $ 100.00 per barrel at the end of the year. This will certainly have an effect on our oil dependent economies. Just as the year was about to begin, oil hit a record high of $100 a barrel for the first time in history. The economies that will benefit from this situation are the oil producing countries of the Middle East and the emerging oil producer, Africa. However continued violence in some parts of Africa may deter the economic growth brought about by the rising cost of oil.

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. 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. The stock market is expected to hit the 4000+ level by the middle of this year.

Most probably, the only factor that will cause a slowdown in this growth is the occasional political bickering and the rising cost of doing business brought about by the rise in oil prices. However I do not see any serious political problems that will happen in 2008. The people are somehow tired of mass actions to call for the resignation of the president. They probably would not also do so considering that we are experiencing growth and will hopefully continue to.

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