LAST week we presented our assessment of the economic accomplishments of the Aquino administration and our forecast for its remaining months. In essence, our midyear briefing focused on the gains of the administration, amid the challenges it faced, particularly in bringing the economy into a higher growth path.
The average growth rate from 2010 to 2014 is about 6.2 percent, the highest in the last three decades. This was made possible largely by the following: a) increase in investments both by the public and private sectors; b) increase in government expenditures; c) improvements in the fiscal processes have helped achieve good fiscal balance; and d) the improvement in broader governance. In turn, the ratings agency took note of this renewed domestic confidence and converted it into giving the country its investment-grade status. The gains were converted into improvements of the Philippines in the global competitiveness rankings from 2010 to 2014. In the World Economic Forum ranking, the Philippines jumped from 85th to 52nd. In the governance subranking, we improved from 117th to 67th, and in ethics and corruption, from 135th to 81st. In addition to these, the country continued to benefit from the influx of overseas Filipino workers remittances (growing annually at about 6 percent) and the full board contribution of the business-process outsourching sector (now contributing about two-thirds of remittances).
The growth in investments went significantly into improvements in the industry and the services sectors, which grew by an average of 2.1 percent and 3.6 percent, respectively. The industry was led by the resurgence of manufacturing, growing its fastest in two decades at about 2 percent and contributing about one-third of total average growth. Services, on the other hand, was led by growth in financial intermediation and real estate, which added about 20 percent to total.
The challenge of this current growth path is that it had difficulty improving the poverty situation. In particular, agriculture grew the least in the last five years. It grew by just an average of 0.25 percent as compared to the 0.75 percent during Estrada and 0.5 percent during Arroyo. With about one-third of the labor force still remaining in agriculture and most of them in conditions of poverty, the trickling of growth will not be enough to reach them. The low growth of the sector also reflects low productivity requiring significant investments in human capital improvement. This is also the reason the government has to ensure that rice prices are affordable. Hence, the concern is: Will it be better directly investing in the sector or subsidizing food prices?
In the chart, it can also be seen that the current administration has seen the weak contribution of exports. As we enter the Asean integration and continue to be part of the Asian supply chain, the declining growth of exports will become a big challenge in the future. Furthermore, much of the expected gains in manufacturing is seen to be translated into exports as part of the global intermediate goods production and as final goods producer. Hence, a weak export picture can have a slowing-down effect on manufacturing, as well. The recent devaluation of the Chinese currency confirms that a global weakness in production exists, leading to lower export demand of our intermediate inputs.
For this year, we already forecasted that full-year growth will be 6 percent at best. This is already assuming that the government expenditures have started to pick up in the second half of the year and that manufacturing continues its above-average growth path. With election spending traditionally propping up the economy, we can expect a higher growth rate in 2016 of about 6.2 percent. The growth levels should not be the concern at the moment. The challenge is more of how the growth for the next years is sustained and how its impact can be deliberately broaden.
This implies that the current global and local confidence must be sustained and translated into investments that will impact a broader segment of the population and in places where growth is lagging significantly. The current government has already started the confidence-building measures and we have started to gain from it. It should be noted that the economy is currently experiencing its lowest inflation and interest-rate regime for the last three decades. This is unprecedented! There is, therefore, an urgency to take advantage of this window and translate it into a broader income growth for every Filipino. This should be pushing local private firms to expand and improve local production. There is no need to wait for foreign direct investments to flow. In this pursuit, those who will run next year should: a) identify and work with private sector on industries and markets that have broad impacts such as agriculture; b) expand and cascade efforts on improving corruption perception at citizen contact levels; and c) use the ongoing changes in the educational sector (i.e., K to 12) as a springboard for better human capital investments. The candidate who sees the many windows of expansion open in the local and global economy will be the one to be able to sustain and broaden our growth path.
1 comment
Rosy indeed, but how about quality of life issues? Access to transportation, greenery, healthcare, education, etc. Charts, figures, stats, even ratings are all good, but unless these pluses translates to something tangible then….