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IMF meetings to highlight policy puzzle for economists

THE bombardment of commentaries about the economic outlook and policy implications from this week’s annual meetings of the International Monetary Fund (IMF) and World Bank will most likely coalesce around three big themes. Although none of them are likely to move the needle for markets, they will highlight critical longer-term challenges that, as yet, lack good theoretical or practical solutions.

The first is the uncertain and unstable outlook for the global economy, which will be underscored by the new IMF projections. On paper, the forecasts are most likely to be marginally better than the last set. But the commentary that accompanies them will emphasize the risks involved, not only those related to further COVID-19 (coronavirus disease 2019) restrictions on economic activity, particularly in some parts of Europe, but also the cautious behavior of households linked to “human counterparty risk” —  that is, the inability of many people to ascertain with a sufficient degree of confidence the risk they take in the face-to-face interactions that are critical for economic activity, particularly in the service sector. Indeed, I would go one step further and suggest that were the IMF projections reworked again today, they would end up with fewer upward revisions.

The second theme is that of broad-based agreement on the need for an overdue transition from excessive reliance on unconventional monetary policy to a more balanced mix anchored by responsive fiscal policy and pro-growth structural reforms. Yet implementing it is far from certain. In some countries, such as the United States, there is insufficient political cohesion. In many emerging economies, it can be attributed to limited policy space and a lack of financial resilience.

The third theme is the urgency to support the most vulnerable countries, which need to spend more on health and other social sectors. It will stress both the importance of expanding and extending the debt-payment holidays provided by many G-20 governments to the poorest developing countries and the need for the private sector to participate. Yet there are few, if any, agile top-down tools for enticing burden sharing on the parts of banks, bondholders and other private creditors.

The combined result will emphasize four longer-term challenges that theoretical and practical economists, in both public and private sectors, need to address urgently:

How to revamp global growth dynamics that, in many cases, may well require a fundamental recasting of models that relied on globalization to supplement internal drivers and to facilitate productivity reforms.

How to deal with national and international inequalities that, because of COVID-19, have jumped in a worrisome way from income and wealth to also include an increasing and potentially devastating dispersion in opportunities.

How to assess the longer-term risks posed to effective monetary policy and financial stability arising from over-reliance on central banks and the lack of policy handoffs.

How to make the international debt architecture more agile in a global system that, at least in the short term, is more likely to face further fragmentation pressures rather than renewed cooperation and coordination.

Some economists have already demonstrated innovation amid multifaceted COVID-19 adversity, such as the use of more micro, high-frequency “big data,” like mobility statistics and credit card payments, to provide more timely indicators of economic activity. The hope is that this week’s annual meetings will act as an additional catalyst for avoiding a repeat of the big policy shortfall of the global financial crisis: that of winning the war against a global depression but failing to secure a peace of durable, inclusive and sustainable growth.

Through more timely theoretical and practical responses to the underlying challenges that will be highlighted by this week’s feast of projections and policy commentary, economists can do much more to both limit the immediate and longer-term damage to well-being and help put in place stronger national and global foundations for longer-term prosperity and genuine financial stability that have eluded too many for too long.

BLOOMBERG OPINION

Working from home is here to stay, so let’s get it right

THE COVID-19 (coronavirus disease 2019) pandemic has crushed the economy, sent joblessness soaring, and killed over a million people worldwide. But there are a few ways in which the pandemic may prompt society to improve, and one is remote work. Though it was initially necessary to keep employees from getting sick, remote work promises to make people more productive and happier while helping the environment and preserving infrastructure.

When the coronavirus struck, those who could do their jobs remotely often did. The number has gradually declined as our understanding of safety measures increased, but it’s still substantial:

And while many people will go back to the office after the pandemic is over, part of the shift will probably be permanent. A recent survey shows a substantial increase in the number of workers who say they won’t go back to the office full time:

There are certainly drawbacks to the remote trend. Those working from home are far more likely to be in higher-income, professional occupations, such as engineers, lawyers, financiers, or consultants. Most lower-income jobs can’t be done remotely, such as in food service and brick-and-mortar retail. That’s created inequality in terms of both unemployment and exposure to COVID-19. And when high-income workers become accustomed to staying home and ordering online instead of going out to eat and shop, it’s lower-earning local service workers who bear the brunt of the shift in demand.

The trend has also taken a psychological toll. People who work remotely often end up putting in more hours than when they go into the office. With the boundary between job and home life blurred, there’s no obvious signal that it’s OK to stop working, which can make it hard to relax. As any graduate student or entrepreneur can attest, the nagging anxiety of whether you should be working more can easily lead to burnout.

But there are good reasons to think that these negative effects will be mostly transitory. As countries that have dealt successfully with COVID-19 show, engineers and lawyers will go back to restaurants and shop at stores when the pandemic is over. While a few industries such as movie theaters may suffer permanent decline, home delivery is not a true substitute for most retail experiences.

Psychological stress will probably also ebb as the coronavirus threat eases. People who work remotely will develop strategies to segment their jobs from their personal lives, and budget their time in ways that leave them less anxious. Professors, writers and other people whose jobs have always been semi-remote show that this can be done. And most workers will eventually alternate between home and the office.

This kind of part-time remote work promises to bring substantial benefits to society. Flexibility will add to work-life balance: If a working parent needs to stay home to take care of a sick child or supervise home repairs, they’ll be able to do that without sacrificing income or productivity. Vacations will be easier, too. Remote work could even increase productivity, by reducing the number of hours wasted by people trying to look busy for their bosses.

Remote work will also benefit American society economically. Fewer days in the office means less time spent commuting. A recent blog post by the Federal Reserve Bank of St. Louis looked at falling commute times in three suburban counties and calculated that about 1 million to 1.5 million hours were probably saved in each county between April and July. Going forward, the amount saved will be less, but still substantial.

Long commutes are associated with unhappiness, so more days spent working at home will make for an emotionally healthier populace. It will also save workers money and reduce wear and tear on the nation’s crumbling road infrastructure. Reduced greenhouse emissions will be yet another plus.

To maximize the benefits from the shift to remote work, government policy should aim to ease the transition. Since more people will be toiling out of their houses instead of an office building, cities should change zoning codes to facilitate conversion of commercial real estate to residential. Government can also subsidize service workers to move to new neighborhoods to follow high-income jobs, since that’s where the new demand will be. It can also help retrain people displaced by long-term shifts in demand (such as the decline of movie theaters). And it can gather information from big companies that successfully managed a shift to partial remote work, and share those strategies with small businesses that might otherwise have a tougher time managing the transition.

In the long run, especially with smart policies, more flexible work arrangements will be a good thing. COVID-19 has wreaked terrible damage on society, but in this small way it will end up moving things in a healthier direction. 

BLOOMBERG OPINION

More synchronized action needed to tackle economic crisis — IMF

WASHINGTON/LONDON — The international community must do more to tackle the economic fallout of the coronavirus disease 2019 (COVID-19) crisis, the head of the International Monetary Fund (IMF) said on Monday, publicly calling on the World Bank (WB) to accelerate its lending to hard-hit African countries.

Some of the key events of the virtual and elongated annual meetings of the IMF and World Bank take place this week, with the most pressing issue how to support struggling countries.

“We are going to continue to push to do even more,” IMF Managing Director Kristalina Georgieva said during an online FT Africa summit.

“I would also beg for more grants for African countries. The World Bank has grant-giving capacity. Perhaps you can do even more… and bilateral donors can do more in that regard,” Ms. Georgieva said in an unusual public display of discord between the two major international financial institutions. No immediate comment was available from the Bank.

Ms. Georgieva last week said the IMF had provided $26 billion in fast-track support to African states since the start of the crisis, but a dearth of private lending meant the region faced a financing gap of $345 billion through 2023.

The pandemic, a collapse in commodity prices and a plague of locusts have hit Africa particularly hard, putting 43 million more people at risk of extreme poverty, according to World Bank estimates. African states have reported more than 1 million coronavirus cases and some 23,000 deaths.

G20 (Group of 20) governments are expected to extend for six months their Debt Service Suspension Initiative (DSSI) which has so far frozen around $5 billion of poorer countries’ debt payments, but pressure is on the main development banks and private creditors to provide relief too.

Ms. Georgieva said the Fund was also pushing richer member countries to loan more of their existing Special Drawing Rights (SDR), the IMF’s currency, to countries that needed support most, and was “very committed” to finding a way forward for countries like Zambia now needing to restructure their debts.

The United States has blocked Ms. Georgieva’s early call for issuance of more SDRs, arguing that it would benefit mostly richer nations, not the developing countries that need it most.

Pledges to the Fund’s Poverty Reduction and Growth Trust, which supports low-income countries, have totaled $21 billion to date, including $14 billion in existing SDR holdings, but more resources were urgently needed, an IMF spokeswoman said.

The IMF chief dodged calls by civil society groups for the IMF to sell off some of its extensive gold reserves, saying the Fund viewed them as an important “financial buffer.”

Profit from selling less than 7% of the IMF’s gold could fund cancelation of all debt payments by the poorest countries to the IMF and World Bank for the next 15 months, the UK-based Jubilee Debt Campaign said in a new report issued Monday.

The IMF said its gold reserve of about 90.5 million ounces (2,814.1 metric tons) was worth about $137.8 billion at the end of December, compared to its historical cost of $4.4 billion.

Ms. Georgieva said countries in serious trouble must restructure their debts as soon as possible.

“This is the message for all countries in debt distress… If debt is not sustainable, please move towards restructuring, the sooner the better,” she said.

Ms. Georgieva said transparency in lending was critical for all parties, and welcomed what she called “encouraging” statements by China to move toward a more consolidated view of the debts held by the Chinese government and other institutions.

“I believe that now is the moment in this crisis, to make … transparency paramount and mandated to the extent possible everywhere,” she said. — Reuters

Active enforcement against foreign bribery down sharply since 2018

WASHINGTON — Active enforcement against foreign bribery has dropped sharply since 2018, and three places — China, Hong Kong and India — did not open a single foreign bribery investigation from 2016 to 2019, a new report by watchdog Transparency International found.

The report, released Tuesday, said the share of global exports from countries that actively enforce legislation against foreign bribery and money laundering is down by more than a third.

Only four of 47 leading exporters — the United States, Britain, Switzerland and Israel, which account for 16.5% of global exports — actively enforced legislation against foreign bribery in 2019, it said. That is down from seven countries accounting for 27% of global exports in 2018.

China, the world’s largest exporter, Japan, the Netherlands, South Korea, Hong Kong, Canada, India and Mexico had the worst track records, the group said.

“Too many governments choose to turn a blind eye when their companies use bribery to win business in foreign markets,” said Delia Ferreira Rubio, chair of the group.

But no country was immune.

Germany, the world’s third-largest exporter, pursued fewer investigations in 2019, and closed fewer cases against graft overseas, while Italy and Norway also showed declines.

Transparency International urged Group of 20 (G20) major economies to step up enforcement, noting money lost to foreign bribery was not available to be spent on critical needs such as healthcare.

To address the problem, Transparency International said all countries that signed the OECD Anti-Bribery Convention and other major economies, should end secrecy in ownership of companies, make case outcomes public, and explore increased liability of parent companies for the actions of their subsidiaries.  — Reuters

Singapore Air’s A380 restaurant tickets sold in 30 minutes

Singapore Airlines Ltd. said all seats on its Airbus SE A380 jetliner pop-up restaurants were reserved within 30 minutes of bookings opening Monday.

With flights largely grounded by the coronavirus pandemic, Singapore Airlines is trying novel ways to raise money, including using two of the superjumbos parked at Changi Airport as temporary eateries.

A meal in a suite costs S$642 ($474), while seats in business class are going for S$321, dropping to S$96.30 for premium economy and S$53.50 for economy. Customers can also pay with frequent-flyer miles.

After lunch on the initial dates of Saturday and Sunday, Oct. 24 and 25, sold out, Singapore Airlines said it will extend the offer for a further two days the following weekend and also add a dinner option on all four days.

About half the seats in each aircraft will be used for dining, in line with restaurant guidelines on group limits and distancing, the carrier said in a statement. In normal flying service, the carrier’s A380s can seat as many as 471 people, according to its website.

Singapore Airlines, which suffered a record S$1.12 billion ($827 million) net loss in the quarter through June and is laying off about 20% of its workforce, is also selling a range of first- and business-class meals and offering a service whereby a private chef reheats, plates and serves customers in their homes.

Meanwhile, demand is soaring for spots on two cruise ships that will start sailing from Singapore next month on round-trip journeys as the city-state aims to give residents an outlet for their wanderlust.

Operator Genting Cruise Lines has received more than 6,000 bookings in 5 days, while competitor Royal Caribbean International said bookings are up 500% compared with the past two weeks, reported the Straits Times. The boats will sail at a reduced capacity of 50% and the journeys are only open to residents of Singapore. — Kyunghee Park/Bloomberg

Peru opens Machu Picchu for a single Japanese tourist after almost 7-month wait

LIMA — Peru opened the ruins of Machu Picchu for a single Japanese tourist after he waited almost seven months to enter the Inca citadel, while trapped in the Andean country during the coronavirus outbreak.

Jesse Takayama’s entry into the ruins came thanks to a special request he submitted while stranded since mid-March in the town of Aguas Calientes, on the slopes of the mountains near the site, said Minister of Culture Alejandro Neyra on Monday.

“He had come to Peru with the dream of being able to enter,” Mr. Neyra said in a virtual press conference. “The Japanese citizen has entered together with our head of the park so that he can do this before returning to his country.”

Mr. Takayama, his entry ticket on hand since March, entered the ruins of the citadel built more than 500 years ago on Saturday, and became the first visitor in seven months to be able to walk through the world heritage site. His original plan had been to spend only a few days in Peru to take in Machu Picchu.

“This is so amazing! Thank you!” said Mr. Takayama in a video recorded on the top of Machu Picchu mountain.

Minister Neyra said that in November the stone ruins of Machu Picchu will be reopened for national and foreign tourists, without specifying the date. The site will permit 30% of its normal capacity of 675 people per day.

“We are still in the middle of a pandemic,” Mr. Neyra said. “It will be done with all the necessary care.” — Reuters

COVID-19 antibodies last at least 3 months; so do symptoms for many

The following is a roundup of some of the latest scientific studies on the novel coronavirus and efforts to find treatments and vaccines for COVID-19, the illness caused by the virus.

COVID-19 antibodies last at least three months

People infected with COVID-19 develop antibodies targeting the new coronavirus that last for at least three months, according to two reports published on Thursday in Science Immunology. 

The two studies, together involving nearly 750 patients, both point to immunoglobulin G (IgG) antibodies, which start showing up well after an infection begins, as the longest-lasting. 

Researchers found IgG antibodies with two targets—a spike protein on the virus that helps it infect cells, and a part of the spike called the receptor binding domain (RBD)—lasted more than 100 days. 

While the protective effect of COVID-19 antibodies is not completely clear, Jen Gommerman of the University of Toronto, coauthor of the study, said her team also found levels of so-called neutralizing antibodies, which inactivate the virus, “appeared to be very stable.” 

The other study, from Harvard Medical School, reported similar findings. This means that a properly designed vaccine “should elicit a durable antibody response that has the potential to neutralize the virus,” Ms. Gommerman said. Her group also found that antibodies in saliva correlated with antibodies in blood, but at this point the saliva tests are not sensitive enough to replace blood tests. 

COVID-19 symptoms linger for months for many

Three months after becoming ill, many COVID-19 patients still have symptoms, two studies confirm, and the more severe the initial infections, the higher the odds of persistent problems. 

In Spain, doctors checked back with 108 patients, including 44 who had been severely ill. At 12 weeks after diagnosis, 76% still reported after-effects, with 40% reporting three or more coronavirus-related health issues, doctors said in a paper posted on Thursday on medRxiv ahead of peer review. 

The most common complaints were shortness of breath, physical weakness, cough, chest pain, palpitations, and psychological and cognitive disorders. 

In a similar study of 233 US COVID-19 patients—eight of whom had been severely ill—one in four still had symptoms 90 days after first feeling ill. Rates were higher for patients who had been sicker: 59.4% at 30 days and 40.6% at 90 days. 

“But even for very mild and initially asymptomatic cases, 14.3% have complications persist for 30 days or longer,” the authors reported on Sunday on medRxiv. 

In the US study, the most common persistent symptoms were impaired smell and taste, difficulty concentrating, shortness of breath, memory loss, confusion, headache, heart palpitations, chest pain, pain with deep breaths, dizziness, and rapid heartbeat. 

Remdesivir cut COVID-19 recovery time by 5 days

Final data from a large study of Gilead Sciences Inc.’s antiviral drug remdesivir showed the treatment cut COVID-19 recovery time by five days among hospitalized patients, one day faster than preliminary data had indicated, researchers reported on Thursday in The New England Journal of Medicine. 

The 1,062-patient study compared up to up to 10 days of therapy with remdesivir—now sold in some markets as Veklury—to a placebo. The average recovery time was 10 days among those who got the Gilead drug versus 15 days in the placebo group. Among patients requiring oxygen at the start, those taking remdesivir continued to need oxygen for an average of 13 days, compared to 21 days for patients who got a placebo. 

In a separate analysis looking just at patients who received oxygen, the drug appeared to reduce the risk of death over the next month by 70%. “We now have data suggesting that giving remdesivir to patients on oxygen may significantly reduce their chances of death compared to other subgroups,” Dr. Andre Kalil, an infectious disease expert at the University of Nebraska Medical Center and the study’s lead investigator, said in a news release.

Coronavirus rarely travels from mother to newborn

Transmission of the new coronavirus from mothers to newborns is rare, doctors from New York-Presbyterian/Columbia University Irving Medical Center reported on Monday in JAMA Pediatrics. 

They studied 101 babies born to 100 mothers with COVID-19, including 10 whose mothers had been severely ill. Almost all of the babies tested negative for the virus, while tests in two newborns had indeterminate results. If these two indeterminate results are considered positive, the overall incidence of transmission was 2.0%. 

Even with a 2% transmission rate, “none of our babies exhibited clinical symptoms of COVID-19, either during their newborn nursery stay or during … the first few weeks of life,” coauthor Dr. Dani Dumitriu told Reuters Health by e-mail. 

Roughly 90% of the newborns were breastfed at least partially. “As the country heads into what looks like a second wave of the COVID-19 pandemic, it is important to know that separation of affected mothers from their newborns may not be warranted, and direct breastfeeding appears to be safe,” study coauthor Dr. Melissa Stockwell said. — Nancy Lapid/Reuters

Surge in natural disasters takes heavy human and economic toll — UN

Philippines among countries with highest number of disaster events

An SUV gets caught in a flood on Timog corner Scout Tobias in Quezon City after a sudden downpour of rain on October 12, 2020. The Philippines recorded 304 disaster events from 2000 to 2019, landing it among the top 10 countries to report extreme weather events. — Photo via PhilStar/Michael Varcas

GENEVA — Extreme weather events have increased dramatically in the past 20 years, taking a heavy human and economic toll worldwide, and are likely to wreak further havoc, the United Nations (UN) said on Monday.

Heatwaves and droughts will pose the greatest threat in the next decade, as temperatures continue to rise due to heat-trapping gases, experts said.

Image via Global Water Partnership CC BY-NC-SA 2.0

China (577) and the United States (467) recorded the highest number of disaster events from 2000 to 2019, followed by India (321), the Philippines (304), and Indonesia (278), the UN said in a report issued the day before the International Day for Disaster Risk Reduction. Eight of the top 10 countries are in Asia.

Some 7,348 major disaster events were recorded globally, claiming 1.23 million lives, affecting 4.2 billion people and causing $2.97 trillion in economic losses during the two-decade period.

Drought, floods, earthquakes, tsunamis, wildfires, and extreme temperature events caused major damage.

“The good news is that more lives have been saved but the bad news is that more people are being affected by the expanding climate emergency,” Mami Mizutori, the UN Secretary-General’s Special Representative for Disaster Risk Reduction, told a news briefing.

She called for governments to invest in early warning systems and implement disaster risk reduction strategies.

Debarati Guha-Sapir of the Centre for Research on the Epidemiology of Disasters at the University of Louvain, Belgium, which provided data for the report, said: “If this level of growth in extreme weather events continues over the next twenty years, the future of mankind looks very bleak indeed.

“Heatwaves are going to be our biggest challenge in the next 10 years, especially in the poor countries,” she said.

Last month was the world’s hottest September on record, with unusually high temperatures recorded off Siberia, in the Middle East, and in parts of South America and Australia, the European Union’s Copernicus Climate Change Service said.

Global temperatures will continue to warm over the next five years, and may even temporarily rise to more than 1.5 degrees Celsius above pre-industrial levels, the World Meteorological Organization (WMO) said in July. Scientists have set 1.5C as the ceiling for avoiding catastrophic climate change. — Stephanie Nebehay/Reuters

 

Big-brand BTS promotions disappear as band sparks uproar in China

HONG KONG — South Korean boyband BTS is facing a barrage of criticism in China after its leader made remarks about the Korean War and several big-name brands, including Samsung, have apparently distanced themselves from the K-pop group amid the uproar.

The controversy is the latest example of the political landmines lying in wait for big brands in China, the world’s second-largest economy.

The leader of BTS, known by the initials RM, upset many people in China in a speech when the band received an award from a US-based organization for their contribution to South Korea–US relations.

RM invoked a “history of pain” shared between South Korea and the United States and, referring to the 1950–53 Korean War, spoke of “sacrifices of countless men and women.”

The war pitted South Korean and US forces against those from North Korea and China.

The comments touched off heated debate on social media in China.

“They should not make any money from China,” one angry user said on the Weibo platform, referring to BTS.

“If you want to make money from Chinese fans you have to consider Chinese feelings.”

Posts featuring Samsung’s BTS special edition smartphones and earphones disappeared from Chinese e-commerce platforms Tmall and JD.com as the controversy swirled.

BTS-related posts from other companies including sports fashion brand FILA and automaker Hyundai, which have endorsement deals with the seven-member group, also disappeared from their official Weibo accounts, Chinese users said.

It was not clear if the companies or someone else had removed the posts. Samsung, FILA, and Hyundai did not respond to requests for comment when contacted by Reuters.

The band’s management company, Big Hit Entertainment, did not immediately respond to a request for comment. — Reuters

‘Car-centricity kills cities,’ says expert

The coronavirus pandemic has highlighted the vulnerabilities of public transport systems to external shocks, and this is providing cities an opportunity to rethink urban mobility. “It should be the hero, not the villain,” said Catarina Heeckt, a Policy Fellow at the London School of Economics, on mass public transport being the backbone of urban life.

“Car-centricity kills cities,” she added. “In Europe, we are rolling back the worst excesses of the car in our cities, but it is much easier to simply not design cities around cars to begin with.”

The Philippines has long grappled with issues related to public transport. Commuters have been desensitized to the realities of mass public transportation: kilometric queues, overcrowding in public utility vehicles, and snaking through purgatorial traffic just to get to work and back. 

“Roadways are inefficient primarily because they are designed for car priority, which has the lowest throughput of all designs,” said Anthony Siy III, head of transport of Pasig City, which deployed a bike-sharing program for frontliners and health workers on March 19, soon after the declaration of the first enhanced community quarantine. The city is also revising standards for bicycle parking provided by private buildings in Pasig. 

“Bicycle parking is incredibly important and one of our recent projects was to install 30 bicycle racks throughout the vicinity of Pasig City Hall complex, creating 180 new bicycle parking spaces,” said Mr. Siy. “This will be continued in 2021.” 

While cycling improves mobility over short distances, it cannot entirely replace public transport. Ms. Heeckt recommended rethinking how limited urban street space is utilized.

SIDEWALKS ARE FOR WALKING

Another important component in urban mobility is the use of sidewalks and other such open spaces. “We start and end all our commutes by walking, but very little is invested for pedestrians and bicycles,” said environmental planner and landscape architect Paulo Alcazaren, who pointed out that sidewalks in the metro are used for everything else but walking. 

Mr. Alcazaren gave examples of pedestrianization and open space improvements in the country, including those in Makati Central Business District, Bonifacio Global City, Manila Baywalk/Cultural Center of the Philippines Esplanade, and Iloilo Esplanade. “Cycling in Iloilo is a chicken and egg case. Once bike lanes were created, people took them up. Dozens of bike shops sprung up. Most households in Iloilo now have one to two bikes.”

Iloilo’s local officials were of a singular political will when it came to these changes, Mr. Alcazaren added. “It’s one reason why Metro Manila has challenges. There are 17 political wills—18, including the national will—but it can be done.” 

“Urban Mobility in the Philippines—during and after COVID-19” was organized by Liveable Cities Philippines and the League of Cities of the Philippines. — Patricia B. Mirasol

FDI climbs to 7-month high in July

By Luz Wendy T. Noble, Reporter

FOREIGN DIRECT investment (FDI) net inflows reached a seven-month high in July, as investor sentiment improved slightly with the economy’s gradual reopening.

July also saw the third straight month of growth in FDI net inflows, but this was not enough to reverse the 11% year-to-date slump for the first seven months due to the coronavirus pandemic.

FDI net inflows jumped by 35% to $797 million in July from $590 million a year ago, data from the Bangko Sentral ng Pilipinas (BSP) showed. This was 65.7% higher than the $481 million in net inflows in June, and the highest since the $1.153 billion in December 2019.

“The FDI net inflows rose for the third consecutive month on the back of investors’ improving sentiment due in part to easing of containment measures, and some signs of gradual improvements in economic activity based on high-frequency indicators,” the BSP said in a statement.

For the first seven months of the year, FDI net inflows declined by 11% to $3.795 billion from the $4.259 billion during the same period in 2019.

The BSP expects to see FDI net inflows worth $4.1 billion this year, less than half the $8.8 billion outlook it gave last year before the pandemic.

The higher FDI inflows in July was attributed to the 60% surge in net investments in debt instruments to $643 million.

Equity other than reinvestment of earnings dropped 19.6% to $81 million in July, as placements shrank 47.7% to $89 million and withdrawals plunged 88.7% to $8 million.

Top sources for equity capital placements during the month were Japan, China, and the United States, the BSP said.

“These were channeled largely to the construction, real estate, wholesale and retail trade, and manufacturing industries,” it added.

Reinvestment of earnings was also down 16.1% to $73 million in July.

Meanwhile, FDI that flowed into equity and investment fund shares fell 18% to $154 million during the month.

“We can attribute the pickup of late to some pent-up investment outlays now that the economy is opening up gradually, but we remain skeptical of a sustained strong influx of equity investments for the balance of the year sans an economic rebound both in the Philippines and abroad,”  ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

The economy slumped to a recession amid the record 16.5% contraction in the second quarter due to the impact of the strict lockdowns. The government expects gross domestic product to shrink by 4.5% to 6.6% this year.

Restriction measures have been eased since June, although strict lockdowns have been reimposed in areas where infections surged.

A recovery in FDI remains uncertain as sentiment is clouded by the pandemic and the lack of vaccine, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.

“As long as we have the coronavirus hanging over our heads, FDI inflows recovery of non-debt instrument investments will be slow, but may improve as the virus is continuously contained in different parts of the world,” Mr. Asuncion said in an e-mail.

“If the vaccine comes in the early part of 2021 or even earlier, FDI may rebound faster than expected,” he added.

The Philippines had 342,816 coronavirus disease 2019 (COVID-19) cases as of Monday, the highest in Southeast Asia.

Remittances slump may continue through 2021 as OFWs face layoffs

Cash sent home by overseas Filipino workers rose by 7.8% to $2.783 billion in July, the highest in seven months. — BLOOMBERG

CASH REMITTANCES may continue to decline through 2021, as more overseas Filipino workers (OFWs) are expected to lose their jobs.

In a note on Monday, IHS Markit Chief Economist for Asia-Pacific Rajiv Biswas said remittances will remain lower than pre-pandemic levels as 178,000 OFWs have already returned home amid the pandemic with more expected to follow.

“There have been significant job losses among Filipino workers abroad, with an estimated 178,000 workers having returned home in the first eight months of 2020 according to the Department of Foreign Affairs (DFA), with a similar number of further repatriations expected for those who have lost their jobs already… This large decline is likely to result in lower remittance inflows in coming months and during 2021,” Mr. Biswas said.

He estimated eight percent of OFWs may have returned home already, based on the number of repatriated workers relative to the 2.2 million OFWs counted in the 2019 Survey on Overseas Filipinos. The government estimates 300,000 OFWs will return to the country this year as companies lay off workers due to the global economic slowdown.

Money sent home by OFWs rose by 7.8% to $2.783 billion in July from a year ago, the highest in seven months. Year-to-date remittances fell by 2.4% to $16.802 billion.

The International Monetary Fund (IMF) said in a blog last month the recent uptick in remittances may be due to migrant workers’ tapping into their savings so they can send money to their families dealing with the crisis back home.

If the scenario proves to be true, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa warned the rebound “may not be sustainable and that we can expect a contraction in remittances both this year and next with the stock of overseas Filipinos based abroad likely depleted.”

Mr. Mapa said they project a 10% drop in remittances this year and a flat growth in 2021 mainly due to base effects.

“The loss of the usual steady and reliable stream of foreign exchange could complicate the economic recovery with authorities banking on consumption to carry the load for a quick bounce back. Slower or less remittance flows would mean that the remittance boost will be less punchy and that the support for (Philippine peso) next year will be limited to some extent,” he said in an e-mail Monday.

Remittances have been the “economy’s escape valve” in the past, Mr. Mapa said, as they stimulate growth through domestic consumption and help sustain a steady stream of foreign currency.

IHS Markit’s Mr. Biswas said the economy will likely contract by 8.2% this year. A 7.7% growth next year can be achieved if a COVID-19 vaccine will be available, he said.

“Over the medium term, the Philippine economy is forecast to return to its previous high growth path, growing at a pace of between 5% and 6% per year. The strong pace of expansion will be underpinned by the growth pillars of renewed strong expansion in domestic consumer spending, rapid growth in government infrastructure spending and rapid growth in exports of manufactures and IT-BPO services to key global markets,” he said.

Mr. Biswas said higher foreign direct investment flows would also help sustain growth as the country becomes more competitive regionally and positions itself as an ASEAN manufacturing hub. — Beatrice M. Laforga

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