DESPITE the damage caused by the pandemic on lives and livelihoods, the Philippine economy has retained its long-term prospects, according to an economist from the University of Asia and the Pacific (UA&P).
In an online briefing, UA&P economist Bernardo Villegas said the Philippines will still become an upper middle-income country within three to four years or, at the soonest, 2023. This means reaching a per capita income of around $4,000 and a growth of 6 percent to 7 percent.
Villegas added that achieving high-income status will also not be far behind in 20 years or 2040. This means those in their 20s would experience high-income growth when they become middle-aged adults, while those in their 40s would already be considered seniors.
“[Any projections in the next] 12 to 18 months are pure guesstimates [because everything] depends on Covid-19 (coronavirus 2019). I give little importance to GDP growth rates in the next 12 to 18 months,” Villegas said.
The country, he said, would have achieved upper middle-income status this year had it not been for the pandemic, while attaining high income status in 20 years is consistent with the AmBisyon2040.
Based on the latest data, the World Bank said an upper middle-income economy would have a Gross National Income (GNI) per capita of $4,046 and $12,535, while a high-income economy would register a GNI per capita of $12,536 or more.
Currently, the World Bank classifies the Philippines as a lower middle-income country with a GNI per capita of $1,036 to $4,045.
Intact fundamentals
Villegas said the country’s long-term fundamentals have remained intact. He said these include the country’s young and growing English-speaking population.
Its location is in the most dynamic economic region in the world, Asia and the Pacific. Villegas also said the country’s membership in the Association of Southeast Asian Nations (Asean) is also a major consideration in the country’s long-term prospects.
Villegas said the Asean region is one of the fastest-growing regions in the world. Data from the International Monetary Fund (IMF), he said, identified the Philippines as one of the 11 Emerging Engines of Growth globally.
He added that HSBC also expects the Philippines to be among the top 20 economies in the world by 2050. In 2050, HSBC said the Philippines will be the 16th largest economy in the world.
Villegas said the country’s abundant natural resources will also ensure its long-term growth and development, especially for tourism.
The administration’s Build, Build, Build (BBB) program will also be sustained by at least two more Presidents after President Duterte, he added.
Villegas likewise pointed to growth corridors outside of the National Capital Region (NCR) where investors could relocate and grow their businesses. Among these is the Bicol region, which has been growing fast; and in terms of provinces, Iloilo and Davao.
Sunset industries moving forward are agriculture; health and wellness; computers or the technological industries; and education. These will allow for a faster and V-shaped recovery for the Philippines.
However, Villegas said long-term challenges for the Philippine economy include low agricultural productivity, obstacles to doing business, especially for foreign direct investors, and shortage of technical skills.
He said the list of challenges includes high rates of electricity; corruption and poor governance; and high frequency of natural calamities.
Annus horribilis
UA&P economist Victor A. Abola said, however, that the Philippine economy will be in a slump this year and it won’t be until the end of 2021 when it is expected to recover.
This year, First Metro Investment Corp.-UA&P (FMIC-UA&P) expects full-year GDP to contract 8 percent to 9 percent. The country’s industry and services sectors are expected to take a beating this year with contractions of 17.5 percent and 2.3 percent, respectively.
In his presentation on Wednesday, Abola also said the peso-dollar rate could average P50 to P51 to the dollar; inflation to 2.5 percent; and Gross International Reserves (GIR), $97 billion.
Remittances from overseas Filipino workers (OFWs) are expected to decline by 8 percent to 12 percent for the full-year 2020. Abola said OFWs have been dealt a “double whammy” with the crisis and the decline in oil prices.
Abola said due to the crises, many OFWs saw their income decline. This meant a decline in their remittances and the limitation of the remittances to prop up the country’s economy through consumption spending.
“We have gone through so many crises in the past and we have shown, time and again, our resilience as a country in overcoming the toughest of crises. The difference this time is that we are coming from a stronger position,” First Metro president Jose Patricio Dumlao, however, said.
The pandemic has brought the Philippine economy to its knees as the lockdowns meant to control the spread of the deadly disease caused GDP to contract to a historic low.
The largest contraction posted by the economy prior to the second quarter this year was toward the end of the Marcos administration in the third quarter of 1984 at 10.7 percent.
PSA said in terms of major industries, agriculture grew 1.6 percent in the second quarter, higher than the 0.7 percent posted in the same period last year.
However, industry and services both became casualties of the pandemic, contracting 22.9 percent and 15.8 percent, respectively.
Mapa said industry’s contraction was the worst in the current 2018-based series. The last time industry posted a similar double-digit contraction was in the first quarter of 1985.
Image credits: Roy Domingo