Retrenchments and closures will be most immediately felt in the goods and services export sectors. Particularly affected will be the major subsectors of electronics (67 percent of exports in 2007), apparel and clothing (5 percent), and furniture and woodcrafts (2 percent). The US in particular is the largest buyer of Philippine garments and furniture and receives 80 percent of total garments exports and 60 percent of total furniture exports. The crisis will weaken global demand for laptops, cameras and cellular phones which are the primary users of the semi-conductors and microprocessors that the country exports. As it is, the country’s export-oriented electronics subsector employs some 500,000-600,000 workers. The US is also the world’s largest end-consumer of electronics.
Even the vaunted business process outsourcing (BPO) industry will likely be badly affected with the United States (US) accounting for over two-thirds of foreign equity and 90 percent of BPO export revenue. The grand target of 940,000 BPO jobs by 2010 is even more impossible especially with employment at most at just 320,000 now. Similarly with local tourism and business travel outfits where hotels and restaurants will feel the pinch of less foreign and domestic visitors.
The jobs situation already continued to worsen in 2008. The number of jobless Filipinos drastically increased by 279,000 in October from the same period last year and increased the unemployment rate by 0.6 percentage points. Rough approximations correcting for the government’s recent maneuver of underestimating unemployment would put the number of jobless Filipinos at around 4.3 million and the unemployment rate at over 11 percent. Even before the descent into greater crisis, job generation was tepid and making little headway against the growing labor force.
The important manufacturing sector lost another 159,000 jobs from the year before, the transport, storage and communication sector lost 10,000 jobs, and financial intermediation lost 4,000 jobs. These trends are likely to continue until next year and be aggravated by deteriorating jobs in construction, finance and wholesale and retail trade. Small and medium enterprises in particular will have a harder time borrowing with creditors preferring perceived “safer” large borrowers.
Filipinos working overseas in distressed countries and sectors face layoffs or at least lower incomes. This is not just in the US where the crisis first erupted but also wherever in the world they might be and no country is untouched by the tumult. The US is notable though in that over half of all remittances – reaching 52 percent or US$7.6 B of US$14.5 B in 2007 – come from the US or via US-based banks. While official records are unable to distinguish between these, it is safe to presume that about one-third of remittances do come from US-based Filipinos inasmuch as the US does host almost three million or a third of all Filipinos overseas. Unfortunately Filipinos there are concentrated in the sectors of the US economy that are already reeling from the crisis: manufacturing and retail (employing around 20-25 percent of Filipinos in the US), accommodation and food services (around 8 percent), and finance and insurance (around 6-7 percent).
Overseas Filipinos will do their best and be making even greater sacrifices to maintain remittances to their families in the country. But remittance flows are still certain to weaken in 2009 and perhaps even significantly. At the very least there will be a slowdown in deployments to the US, Europe, Middle East, East Asia and seaborne work where the overwhelming number of overseas Filipinos go and a corresponding drop in growth of remittances from abroad. The corresponding drop in household incomes will have repercussions on domestic sales of consumer goods and services and even of residential real estate. All things considered, this is a wake-up call for the government, which has mythologized overseas remittances as some kind of magic bullet for development.
People’s incomes will also be eroded by government’s low wage policy and employer efforts to pass the burden of the crisis onto workers through cuts in benefits and pay, less working days, and shorter working hours.
The job losses and squeeze on wages, benefits and remittances will combine with rising prices and have an immediate impact on household incomes that will cause poverty to rise. But the spending will also have further depressing effects – possibly beginning with domestic wholesale, retailing and food services as stores and restaurants face lower consumer spending. Additional pressure comes from the generalized slowdown due to overall economic uncertainty, lower consumption, tighter credit and depressed investments. The poorer business sentiment and tightening of capital flows is already reflected in steep stock market drops and much higher interest rates.
Absent meaningful pump-priming, the construction sector will see a drastic slowdown and corresponding difficulties for tens of thousands of informal and irregular construction workers and their families. The problem will be worse if a speculative property bubble has developed which results in debt payment defaults next year. Rural livelihoods will also be affected by reduced exports of cash crops and then eventually even by depressed domestic demand for farm products.
There will be a cascading downward effect on the economy. Job losses and lower incomes in immediately affected sectors will have second round and multiplier effects, which will slow economic activity elsewhere, which will dampen investments and growth, which will further lower incomes and spending, and so on. These will begin to be felt in the early months of 2009 and likely worsen as the year progresses and the global economy worsens.
It is reported that the local financial system has limited direct exposure to toxic assets and has not engaged in over-leveraging or other risky practices as in the US. But the country is still seeing capital flowing out and drying up. Risky underdeveloped countries globally – especially the previously hyped “emerging markets” – are facing credit rating downgrades, drops in foreign investments and plummeting currencies. Capital’s flight to safety away from the Philippines has included, ironically, to the US which is the epicenter of financial tumult but whose massive bailouts have made it seem less risky.
