AS household spending in the third quarter grew at its slowest pace in four years, local economists fear the worst: The rate of poverty reduction may have also slowed during the period.
The situation could turn dire, they said, if the government is unable to address the supply problem that is being touted as the primary cause of high commodity prices.
Ateneo Center for Economic Research and Development Director Alvin P. Ang told the BusinessMirror that should this happen, some of the ground covered in reducing poverty could be lost.
“I am concerned that if the supply problem will continue, inflation will increase further and the poverty rate will worsen because the poor will not be able to afford food items,” Ang said.
“That is the concern, basically. The gains you have made in the past will be wasted. The inclusivity of growth will be lost.
If this will be lost, your distribution [of economic growth] will worsen because the poor won’t be able to have access [to food]. Instead of improving the poverty situation, it will worsen,” he added.
On Thursday the Philippine Statistics Authority (PSA) reported that Household Final Consumption Expenditure (HFCE) grew 5.2 percent in the third quarter, the slowest since the 5 percent posted in the third quarter of 2014. Food consumption grew by only 2.8 percent in the third quarter, slower than 6.2 percent recorded in the second quarter.
The slower spending by households significantly affected the country’s economic performance in the July-to-September period. GDP grew 6.1 percent, the slowest expansion recorded in two years.
Other economists, such as Unionbank Chief Economist Ruben Carlo Asuncion, said the slowdown in household consumption caused by expensive food and fuel, will have an impact on poverty.
Asuncion said high prices could also immediately increase self-rated poverty incidence in the country. Self-rated poverty data is collected periodically by the Social Weather Stations.
“The government has to continue to address supply-side issues to help rein in inflation. Measures have to be rolled out and properly implemented. We have heard of the rice tariffication law which has to be passed very soon,” Asuncion said.
University of Asia and the Pacific School of Economics Dean Cid Terosa said there is a need for the government to protect Filipinos, particularly in enhancing their purchasing power.
Terosa stressed that the government needs to ensure enough supply and access of all families to various basic commodities to prevent households from falling into poverty.
Purchasing power
Based on the estimate of the PSA, the Consumer Price Index in October was already at 119.8 since the base year used is 2012. Using this base year means that the value of Filipino’s P100 in 2012 is now only P83.
The PSA said Filipinos need to shell out an additional P17 today for every P100 they used to spend buying various goods and services six years ago. This also means that P10,000 in 2012 is now only worth P8,300 due to the increase in inflation. The value that was lost in terms of purchasing power due to high prices is P1,700 in six years.
“It’s important for the government to protect each household’s command over goods and services by protecting and enhancing purchasing power. The reduction of absolute material poverty depends on this,” Terosa said.
“It’s a big factor, since consumption spending is at least 60 percent of total spending in the economy. The government has to persistently ensure that prices of commodities do not trend upwards by ensuring enough supply, dispersing accessibility of basic commodities, and widening their distribution,” he added.
‘Not automatic’
However, Action for Economic Reform Coordinator Filomeno Sta. Ana III said increasing poverty because of high commodity prices is not automatic. He noted that household consumption, even food consumption, remains positive.
Sta. Ana added that wage employment has increased and this could help lift poor Filipinos from poverty. Nonetheless, he said, the country could have done better in terms of economic growth.
“What we can safely say is that some households are worse off because of food inflation, but it’s also possible that increased employment has lifted others out of poverty. But the point is, 6-percent growth can be poverty reducing, though we could have done better,” he said.
University of the Philippines economist Toby Melissa C. Monsod also pointed out that while consumption slowed, it recorded positive growth. She said this is largely due to higher commodity prices.
However, Monsod said the government cannot intervene when it comes to maintaining consumption growth at certain levels.
Ang agreed and said insofar as government efforts are concerned, the administration has already done its part by reducing taxes and granting wage hikes. He also said that the situation does not merit any increase in programs like the Conditional Cash Transfer.
“Supply is what is needed, the government should ensure ample supply. In a way, the government has already intervened by granting a wage hike and tax cut, these are the only things the government can do. It cannot continue to subsidize,” Ang said.
The National Economic and Development Authority’s National Planning and Policy Staff Director Reynaldo Cancio also pointed out to the BusinessMirror that consumption remained positive, albeit, weaker than in recent years.
Cancio said that while the government is concerned about this, the country’s economic growth since the last Family Income and Expenditure Survey in 2015 and modest inflation in 2016 and 2017 will allow the country to still see an improvement in poverty reduction in 2018.
Ang also said the Philippine economy was only growing according to its current capacity. He said he is not worried that a slower economic growth rate would lead to dire consequences for the country. “Growing at a faster rate than that could result in problems such as resorting to measures that could lead to more debts on the part of the government,” he said.
Socioeconomic Planning Secretary Ernesto M. Pernia told reporters that the only setback with a 6.1-percent growth is that it will make the Development Budget Coordination Committee growth targets “more challenging.”
Pernia said the economy needs to grow by 7 percent in the last quarter of the year in order to attain the low end of the government’s growth target of 6.5 to 6.9 percent growth for the whole of 2018. He also said the government is concerned about the slowdown in consumption.
“We are not exactly exuberant about the 6.1-percent growth rate, but still comforted that we remain one of the fastest-growing economies in Asia, next to Vietnam at 7 percent, China at 6.5 percent and way ahead of Indonesia at 5.2 percent,” Pernia said.
“We are concerned, because the reason for the slowdown, among others, is the slowdown in household consumption, particularly the marked slowdown in the household spending on food and other basic products,” he added.
In order to address the situation, Pernia said Congress should pass the rice tariffication bill, which is expected to reduce rice prices by P2 to P7 per kilogram. He said the country’s agricultural development program can be funded from these tariff revenues.
Pernia added that the full implemen-tation of the Ease of Doing Business Act will streamline procedures and processes and encourage investors to set up business in the Philippines.
This, apart from the proposed reduction of corporate income taxes and the streamlining of fiscal incentives for those who need them, as well as the liberalization of foreign participation in areas/activities through the 11th Regular Foreign Investment Negative List.
The PSA said that, among the major economic sectors, Services recorded the fastest growth at 6.9 percent, followed by Industry, which expanded by 6.2 percent. Agriculture production declined by 0.4 percent.
Net Primary Income rose by 5.6 percent, resulting in the 6-percent hike in gross national income. With the country’s projected population reaching 106.6 million in the third quarter of 2018, per-capita GDP grew by 4.4 percent.