Philippines Economy: Global Trade and Banana Production (PDF)

WEEK 11: IN THIS ECONOMY!? The Macroeconomics of Discontent Global economic growth ○ Current growth trajectories are insufficient to meet global development goals and adapt to climate challenges Monetary policies and inflation...

WEEK 11: IN THIS ECONOMY!? The Macroeconomics of Discontent Global economic growth ○ Current growth trajectories are insufficient to meet global development goals and adapt to climate challenges Monetary policies and inflation ○ Post-pandemic, central banks focused on restoring inflation to target ranges by hiking interest rates, leading to increased borrowing costs for households, particularly affecting those with high debt levels. ○ Low growth + high interest rates = debt ○ High public debt ratios in many economies as the new, post-pandemic norm ○ Risk of a return to austerity measures (spending cuts and/or tax increases to reduce budget deficits and/or government debt) ○ Overreliance on prolonged monetary tightening as the sole policy tool to lower  inflation has been only partially effective while inflicting undue hardship Global supply chain ○ The post-pandemic inflation spike was largely a supply issue, created by bottlenecks in global value chains and excessive concentration in key sectors Income distribution concerns ○ There is a noted decline in the labor share of income and real wages, particularly in developed economies, raising concerns about income inequality and social discontent. The post-COVID-19 recovery has seen widespread discontent as higher consumer prices and credit costs eat into household disposable income. Household consumption spending has been suppressed, remaining below pre-pandemic levels in a number of countries. This fuels feelings of economic insecurity in both advanced and developing countries, a factor driving widespread disaffection with globalization. Global trade hit a record $33 trillion in 2024, expanding 3.7% ($1.2 trillion) Services drove growth, rising 9% for the year and adding $700 billion – nearly 60% of the total growth Trade in goods grew 2%, contributing $500 billion Growth varied by industry – agrifood, communication technology and transport saw gains, while energy, apparel and extractives slowed due to weaker demand and policy shifts. Trade inflation neared zero as prices for traded goods stabilized in the last quarter of 2024. In 2024, developing economies outpaced developed nations, with imports and exports rising 4% for the year and 2% in the fourth quarter, driven mainly by East and South Asia. South-South trade expanded 5% annually and 4% in the last quarter. China and India outperformed global trade averages. In contrast, trade in the Russian Federation, South Africa, and Brazil remained sluggish for most of the year, with some improvement in the fourth quarter. Meanwhile, developed economies’ trade stagnated, with imports and exports flat for the year and down 2% in the last quarter. In 2024, global trade imbalances returned to 2022 levels. The US trade deficit with China reached -$355 billion, widening by $14 billion in the fourth quarter, while its deficit with the European Union (EU) increased by $12 billion to -$241 billion. Meanwhile, China’s strong exports pushed its trade surplus to the highest level since 2022. The EU reversed previous deficits and posted a trade surplus for the year. UNCTAD warns that while trade remains strong, uncertainty looms in 2025. Trade has remained stable in early 2025, but mounting geoeconomic tensions, protectionist policies and trade disputes signal likely disruptions ahead. Falling shipping indexes signal weaker demand for manufactured goods, inputs and commodities as businesses adjust to increasing uncertainty. The challenge in 2025 is to prevent global fragmentation – where nations form isolated trade blocs – while managing policy shifts without undermining long-term growth. Today, about two-thirds of international trade occurs without tariffs, either because countries have chosen to reduce duties under MFN treatment or through other trade agreements. However, tariff levels applied to the remainder of international trade are often very high, with significant differences across sectors.  Agriculture remains highly protected, manufacturing still encounters trade barriers in key industries, while raw materials generally benefit Developing countries face higher duties that limit market access. Agricultural exports from these nations face import duties averaging almost 20% under MFN treatment. Meanwhile, textiles and apparel remain subject to some of the highest tariff rates (import duties average close to 6%), limiting developing countries’ competitiveness in these industries. South-South trade still faces high tariffs. For example, trade between Latin America and South Asia faces an average tariff of about 15%. Tariff escalation discourages developing economies from exporting value-added goods, hindering industrialization. This refers to the practice of applying higher tariffs on finished goods than on raw materials or intermediate inputs. Designed to protect domestic industries, this tariff structure also discourages manufacturing in countries that produce raw materials, creating a disincentive to move up the value chain. Policy Recommendations ○ Controlling spending to stabilize public debt is insufficient given the investments needed to reduce poverty and income inequality. ○ Elevated public debt burdens and the magnitude of investments needed to address prevailing development and climate challenges make clear that rebalancing state budgets requires greater revenues. The path ahead requires coordinated actions, including to increase global taxation on high- net-worth individuals and large corporations. ○ Improved access to affordable, reliable, and long-term financing options is key in securing adequate public investment towards development goals. ○ A balanced policy mix that addresses the different forces driving inflationary pressures would be both more effective and entail less “collateral damage”. Such policies include concerted actions to rein in anti- competitive practices, abuses of dominant market positions and corporate concentration in key markets, as well as revisions to the existing regulatory framework for commodity-trading activities. ○ Monetary authorities should deliberate on the wider impacts of their decisions. Among the factors to consider are the impacts of monetary decisions on debt trajectories and servicing costs, the financing of critically needed investments and financial sustainability. Such changes in the criteria and functioning of policymaking need to be embedded in the mandates of monetary institutions. Case Study: Philippine Bananas The Philippines is the 3rd largest producer of bananas globally, following India and China in 2014 (FAOStat, 2017). ○ Cavendish, the primary variety (50% of the total banana production), generates 329,648 jobs in the country, providing P42.3B in annual wages ○ Lakatan, a popularly known dessert, contributes 11% of the total banana production ○ Saba, a major cooking-type banana, comprises 29% of the total banana production The Davao Region is the top producer of bananas with 3.43M mt or 37.4% of the total banana production in 2019. Significant banana producers in the Philippines also include the regions of Northern Mindanao, SOCCSKSARGEN, and BARMM, with  21.4, 12.9, and 6.5 percent shares in 2019 production, respectively. Reasons ○ geopolitical tensions ○ production issues ○ lack of investment ○ stronger competition from Latin America and Asia Mexico and Peru enjoy zero tariff on their bananas in Japan lower tariffs due to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) Regional Trends Developed Economies ○ Stagnant wages and rising inequality ○ Aggressive monetary tightening policies (raising interest rates) to curb inflation ○ Youth unemployment ○ Political polarization and the election year in 64 countries (2024) Emerging Markets ○ Economic growth vs. social justice ○ Debt crisis ○ Informal economy ○ Political instability and corruption ○ Dependency The Global Economy: A Story of Struggles and Hope After the COVID-19 pandemic, the world economy is still struggling to get back on its feet. Growth is happening, but it’s too slow to meet people’s needs or to deal with big problems like poverty and climate change. To fight high prices (inflation), central banks around the world raised interest rates. This made it more expensive for people and governments to borrow money. While it helped control inflation a bit, it also caused problems—especially for families already in debt, and for governments that now have to pay more to manage their debts. This mix of slow growth and high borrowing costs is now common in many countries. Some are even thinking of cutting government spending again, which could hurt the poor and delay important investments. But inflation didn’t just come from too much spending—it also came from supply chain problems after the pandemic and from a few powerful companies controlling key markets. Sadly, most countries focused only on raising interest rates instead of fixing these deeper issues. At the same time, regular people are feeling the pain. Wages haven’t kept up with prices, and many are spending less than before the pandemic. This makes people feel financially insecure, leading to more anger and frustration—especially in countries that were already struggling. Global trade hit a record $33 trillion in 2024, mostly thanks to services like travel and IT. But not all areas grew—energy, clothing, and raw materials slowed down. Developing countries like China and India did better than rich countries, which saw little to no growth in trade. Still, trade problems aren’t over. New tensions between countries, rising protectionism, and trade fights could make things worse. Also, many poor countries face high tariffs that make it hard for them to sell products like food and clothes, especially if they try to sell finished goods instead of raw materials. What Needs to Change? Just cutting spending isn’t enough. Countries need to collect more taxes from the wealthy and big companies to fund public services. Governments need better access to affordable loans to invest in things like healthcare, education, and green energy. Policies should be balanced—fighting inflation without hurting people’s lives. Central banks should also consider how their decisions affect debt, public investment, and overall economic well-being. And finally, trade rules should be fairer to help developing countries grow and move up the value chain. A Local Example: Bananas in the Philippines The Philippines is the world’s third-largest banana producer. The banana industry gives jobs to over 300,000 people. But it's facing challenges—from global tensions and local production issues to stronger competition from countries like Mexico and Peru, who enjoy lower tariffs when exporting bananas to places like Japan.  WEEK 12: THE ILLUSION OF A REBOUND Post-pandemic economic policies have intensified global inequalities and public dissatisfaction worsening inflation and slow growth ○ Bottlenecks (happens when part of a process gets stuck or slowed down, causing delays for the whole system) in global value chains (entire process of creating and distributing a product, from raw materials to finished goods) & global supply chains (physical flow of goods and materials across the world) The pandemic disrupted the production and movement of goods. Even after lockdowns ended, the global system couldn't easily recover. Shortages in semiconductors, energy, food, and other essentials caused prices to rise. These supply chain issues dragged on growth while making everyday goods more expensive. ○ dominance of oligopolistic sectors (market controlled by a small number of large firms (for example, companies like Amazon, Apple, or a few big shipping firms) Some industries (like tech, pharmaceuticals, shipping) are dominated by a few giant firms. During and after the pandemic, these firms used their market power to raise prices further, worsening inflation. Smaller competitors were squeezed out, reducing consumer choice and driving inequality. In sectors dominated by a few players, companies could easily raise prices without much fear of losing customers. This worsened inflation and hurt consumers. ○ monetary tightening (central banks make borrowing money more expensive, usually by raising interest rates, to slow down inflation) measures Central banks (like the US Federal Reserve) raised interest rates to fight inflation. But higher interest rates also slow down economic growth and hurt borrowers (businesses, households, and developing countries). The poor are hit harder because they have less financial cushion. regional disparities (economic gaps between different places) ○ Recovery has been uneven across countries and regions. ○ Wealthy countries could afford bigger stimulus packages and better vaccines, leading to quicker recoveries. Poorer countries struggled with debt and underfunded health systems. ○ Even within countries, rich urban areas bounced back faster than poorer rural ones, amplifying resentment. trade tensions (countries raise barriers to trade (like tariffs, export bans, or stricter rules) against each other) and fragmentation (the world economy is splitting into competing blocs instead of cooperating globally) ○ The pandemic increased nationalist and protectionist tendencies (e.g., "reshoring" industries, securing "strategic" resources like chips). ○ Now, instead of working together globally, countries are building rival blocs — the US vs China, etc.  ○ This fragmentation hurts global trade and investment, reducing growth potential and creating instability. debt (problems repaying the money that governments borrowed during the pandemic to keep their economies alive) and investment challenges (mean it becomes harder for poorer countries to attract money to fund growth (like building infrastructure, industries, etc.) ○ Many developing countries took on huge debts during the pandemic. Now, with higher interest rates, repaying debts is harder. ○ Meanwhile, investors prefer "safe" assets (like US Treasury bonds) over investing in poorer countries. ○ Less investment means slower development, higher poverty, and social discontent. election year (when governments are especially sensitive to public opinion because they are seeking re-election) ○ 2024 and 2025 are big election years globally (e.g., US, India, Indonesia, EU Parliament). ○ High inflation, sluggish economies, and inequality are key voter issues. ○ Political polarization increases when people feel economically insecure and believe the system benefits only the wealthy and connected. UNCTAD calls for a fundamental rethink of development strategies to address the nuanced realities of the global economy, emphasizing the need for inclusive and sustainable growth. Graph Explanation Red Curve ("Economy"): This shows the real-world ups and downs of the economy over time — it expands (grows) and contracts (shrinks) in cycles. Blue Line ("Long-Term GDP Trend"): This represents the ideal, steady growth path of the economy over the long term (ignoring short-term fluctuations). Key Points: ○ Boom: The economy grows faster than the long-term trend. People feel good: more jobs, rising wages, lots of spending. ○ Peak: The highest point before the economy starts to slow down. ○ Bust: The economy falls below the trend — there’s recession, unemployment rises, businesses suffer.  ○ Trough: The lowest point before recovery begins. Relation to Macroeconomics of Discontent and Illusion of a Rebound: After the pandemic, many economies entered a recovery phase — shown by a rapid rise on the red line after the trough. However, this recovery created an illusion of a strong rebound: ○ At first, GDP growth looked impressive because it was coming from a very low base (after the economic crash). ○ Government stimulus (cash aid, cheap loans) boosted short-term spending, creating a "boom-like" effect. ○ BUT: beneath the surface, inflation, debt, supply chain bottlenecks, and inequalities were building up. ○ So even though headline numbers (like GDP) looked good, ordinary people didn't feel real improvement — leading to macroeconomic discontent. Illusion of a Rebound Growth in merchandise trade (which means trade in physical goods like cars, electronics, food, etc.) is expected to rebound about 2% in 2024. The anticipated growth is modest and may not signify a robust recovery. ○ But 2% growth is very small, especially after a big slowdown during the pandemic years. ○ So even though it looks like trade is "rebounding," the growth is too weak to mean the global economy is truly healthy again. ○ ➔ This is why it's called an "illusion" — the numbers look positive, but the recovery is not strong. Several countries have introduced trade restrictive measures related to China in 2024. ○ Many countries (especially the US and its allies) have introduced new restrictions (tariffs, bans, stricter rules) against Chinese goods. ○ This slows down global trade because China is one of the world’s biggest exporters. ○ More trade barriers = less efficient global trade = slower growth. International prices of many commodities have receded from their 2022 peaks, yet they remain high by historical standards. Borrowing costs, however, are above historical averages. ○ Commodities are basic goods like oil, wheat, metals, etc. Their prices fell from the very high levels in 2022 (during the Ukraine war, supply shocks, etc.). However, even after falling, prices are still higher than usual historically, which keeps costs of living and production expenses high for many countries. ○ Borrowing costs = interest rates people, businesses, and governments have to pay to take loans. Today’s borrowing costs are higher than the historical average (because of "monetary tightening" — central banks raised rates to fight inflation). This makes it more expensive to: Buy a home  Invest in new businesses Build infrastructure Result: Less investment, slower growth. Challenges for Policymakers Weakened macroeconomic foundations do not provide a favorable economic and financial environment for development. Geopolitical tensions ○ Conflicts or rivalries between major countries (ex. US vs China, Russia- Ukraine, Middle East issues) cause uncertainty. ○ These tensions can disrupt global trade, investment flows, and energy markets. ○ ➔ Policymakers must work around unpredictable international shocks. Global warming ○ Climate change causes natural disasters, crop failures, rising costs for insurance, food, and energy. ○ Policymakers are forced to balance between fighting climate change (investing in green tech) and supporting the economy (which often still relies on polluting industries). ○ ➔ Sustainability vs Economic Growth becomes a tough balancing act. Financial and currency instability ○ Interest rates and currency values (like the dollar, euro, yen) have become very volatile. ○ Financial markets (stock markets, bond markets) are unstable. ○ For example, if a country’s currency drops too much, import prices rise and inflation worsens. ○ ➔ Policymakers struggle to keep financial systems stable and protect purchasing power. Uncertainties and discontent ○ With so much instability (economic, political, environmental), people feel insecure about their future. ○ There’s growing public anger about inequality, unemployment, and government performance. ○ ➔ Discontent can cause protests, political instability, and make it harder to pass needed reforms. The 2024 Revival Geopolitical tensions and policy uncertainty ○ The prioritization of domestic issues and the pressing need to fulfill climate commitments are prompting shifts in trade and industrial policies. Higher reliance on trade restrictions and inward-focused industrial strategies are expected to prevent a smooth functioning of international trade. Around the world, political conflicts (like US-China tensions, Russia- Ukraine war, Middle East instability) are making international relations unpredictable. At the same time, countries are prioritizing their domestic problems (like jobs, inflation, climate change) over global cooperation. To meet climate goals (like reducing carbon emissions) and boost their own industries, governments are changing trade and industrial policies:  More trade restrictions (like tariffs, bans, and export controls). More inward-looking strategies (supporting their own companies instead of promoting global trade). ➔Result: International trade is no longer smooth or open, making global economic recovery weaker and slower. The limits of services-led exports ○ Developing economies focus on manufacturing but the efficacy of industrialization as a growth strategy has been undermined because the comparative advantage of developing countries no longer matches the skill- and capital-intensive production techniques that are increasingly central to many manufacturing processes. Some developing countries tried to grow their economies by focusing on services (like call centers, IT outsourcing, tourism). But services alone are not enough for strong, long-term growth — especially now when global demand is uncertain. Industrialization (growing manufacturing industries) is traditionally how countries like China, South Korea, and Vietnam became rich. However today, manufacturing is: More skill- and capital-intensive (needs advanced machines, highly skilled workers, and lots of money). Developing countries can no longer easily compete because they lack the high-tech skills and capital needed for modern factories. ➔Result: Traditional paths to development (through simple manufacturing) are much harder now. Development Strategies (New Priorities) Competitiveness ○ Make their economies more productive, more innovative, and better at adapting to global changes. ○ Invest in technology, education, and infrastructure. Capabilities ○ Build up human skills (like engineering, tech, green energy) and technological know-how. ○ Countries need people and companies that can do high-value work, not just basic manufacturing. Connectedness ○ Stay linked to global markets even as protectionism rises. ○ Build strong trade partnerships, digital networks, and global supply chains. ○ "Connected" economies are more resilient to shocks. Service-led export growth Services-led development would become the norm rather than the exception in the future. This is based on the assumption that services trade would allow developing nations to directly export the source of their comparative advantage – i.e. labor, which is low cost given its lower productivity – without having first to make goods with that labour and then export the goods. In other words, joining service value added chains would require less of a push than the development of an industrial base. Yet the  accumulation of human capital may take longer, compared to the time needed to accumulate physical capital in a context of significant financial openness. ○ In the future, services-led development (relying more on services than manufacturing) will become more common, especially for developing countries. ○ Why? Services (like business outsourcing, software support, online education) allow countries to directly export their labor — without needing to first build a factory and manufacture goods. It seems easier to plug into global service value chains than to go through the full industrialization process. ○ BUT there's a catch: To be successful in services, countries need educated, skilled workers (high human capital). Building human capital (skills, education) takes longer than building physical capital (like factories) — especially when economies are open to global financial pressures. There is a need to consider the increasingly important interplay between environmental, demographic, financial and technological factors that affect economic growth, trade, and global supply chains. ○ Manufacturing and services are unable to generate sufficient jobs for the unskilled labor force due to the “finance curse”. These sectors often rely primarily on high-level skills and automated processes. Manufacturing and services today can't absorb enough low-skilled workers: Modern industries rely on automation and highly skilled labor. Low-skilled workers are left behind. ➔ This is partly due to the "finance curse", where too much focus on financial growth hurts broader employment and industrial development. ○ Labor-intensive sectors such as tourism and construction do not generate significant productivity enhancements given limited possibilities for achieving meaningful economies of scale and creating backward and forward linkages. These sectors can hire low-skilled workers. But they don’t boost productivity much because they can’t easily scale up (you can only build so many hotels or roads efficiently). Services and Sustainability Many believe that trading services is better for the environment because services are "lighter" (less material, less pollution) than manufacturing. However, reality is more complicated: ○ The positive framing of trade in services for sustainable development partly relies on the assumption that services are more dematerialized and less harmful to the climate and environment than trade in manufacturing. Yet many services, such as transport and tourism, are highly carbon-intensive and hard to decarbonize. Digitally delivered services, such as ecommerce, are energy- intensive and generate strong rebound effects as they generally accelerate the  production, circulation, and consumption of material goods. The case for pitching the fast growth of trade in services – and even digital services – as a sustainable development path appears limited and questionable. Digitally delivered services and trade across borders have grown very rapidly. Cryptomining and data centers alone accounted for 2% of global electricity use and nearly 1% of global emissions in 2022. Moreover, this boom would not have been possible without growing water and energy use. The energy consumption of the information and communications technology sector has grown by 9% per year on average during the last decade. ○ Digital services (like ecommerce, online streaming) consume huge amounts of energy: Data centers, cryptomining, and internet infrastructure use a lot of electricity and water. Global electricity use by ICT (information and communications technology) grows about 9% every year. In 2022, cryptomining and data centers accounted for 2% of the world's electricity use and nearly 1% of emissions. ➔Conclusion: Services, especially digital ones, are not as environmentally friendly as often claimed. The idea that service trade is automatically sustainable is questionable. Recommendations Encouraging lower-skill job creation by larger firms in non-tradable services ○ In sectors like retail, maintenance, care services, etc. ○ Helps absorb workers who can’t compete in high-skill sectors. Providing public inputs and access to productivity enhancing investments for smaller enterprises ○ Public services (like better internet, education, logistics). ○ Access to funding and technology that can make them more productive. Investing in technologies that complement rather than replace low-skilled workers in services sectors. ○ Instead of replacing them with robots or full automation. ○ Example: Using simple digital tools to help workers do better jobs rather than replacing workers entirely. The 2024 Revival Prices have receded but remain high ○ Aggregate commodity prices remain more than 20% above their 2019 level Oil and natural gas: high profitability limits the energy transition These sectors are still highly profitable. Result: High profits slow down the shift to renewable energy because fossil fuels remain attractive for companies. Minerals and metals: price volatility remains amid intensifying geostrategic competition Their prices fluctuate wildly because of geopolitical competition (like China vs. West fighting over rare earths, lithium, etc.) ➔ Supply uncertainty causes price volatility. Food and fertilizers: elevated prices still weigh on poor households Prices are still very high, affecting poor households the most, as they spend a bigger share of their income on food. ➔ Food insecurity remains a major problem. Net capital flows are still fragile and uncertain ○ Net capital flows to developing countries returned to positive territories during the first quarter of 2024 after registering negative values over nine quarters in a row. This means that, in aggregate, resident units from developing countries again became net borrowers vis-à-vis non-resident units from developed ones. Capital flow = money moving in or out of countries through investments, loans, etc. Good news: In early 2024, capital started flowing back into developing countries after 9 straight quarters (over 2 years) of net outflows. Meaning: Developing countries borrowed more from the global financial system again. BUT:  The recovery is fragile — political instability, interest rate changes, or financial shocks could quickly reverse the flows. ➔ Access to finance for developing countries is still risky and uncertain. Sovereign Debt (money that governments borrow from domestic or international lenders) Today, many countries face debt crises — they borrowed heavily during the pandemic and now struggle to pay back because of higher interest rates and weak growth. 1. Revisiting the UNCTAD Principles on Promoting Responsible Sovereign Lending and Borrowing to align them with broader development financing needs, innovative financial instruments and the new creditor landscape a. Update international guidelines for responsible lending and borrowing. b. Adjust them to today’s new financing tools (green bonds, climate finance, etc.) and new lenders (like China, private investors). 2. Creating an international loans repository to improve debt management by digitizing loan transactions, ensuring consistent financial terms and providing reliable statistics a. A global digital database that records all loan deals. b. Ensures transparency, consistent loan terms, and reliable debt statistics. 3. Establishing a multilateral sovereign debt workout mechanism with ensured participation of all creditors, including private lenders, on comparable terms a. A global system where all creditors (private and public) must sit down and restructure debt fairly. b. Solves the problem where private lenders refuse to cooperate. 4. Setting up a borrower’s club to discuss technical issues and innovation as well as sharing experience and advice a. A group where borrowing countries share advice, innovate solutions, and negotiate together to get better deals. 5. Initiating an automatic standstill for countries declaring distress, to concentrate the minds of creditors in the workout process a. When a country declares financial distress, all debt payments would automatically pause. b. This forces lenders to quickly come to the table for debt restructuring. 6. Defining international and domestic rules for a standstill on debtors’ obligations during climate, health, and other external crises. a. Create international laws allowing debt payments to pause during big external shocks (like pandemics, climate disasters).