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PH ends boom-and-bust cycle

The Philippines has finally shed its image as the sick man of Asia, after the economy grew by an average of 6.2 percent in recent years.

All hopes are now pinned on President Rodrigo Duterte’s government to sustain recent economic gains in the next six years and beyond.

The administrations of President Gloria Macapagal-Arroyo and Benigno Aquino III are credited for establishing the strong macroeconomic fundamentals of the Philippines and it is up to President Duterte’s government to follow up on the reforms. Businessmen have so far welcomed the new administration’s initial economic thrusts, with the Philippine stock market index rallying past the 8,000-point mark to cheer Mr. Duterte’s assumption of office.

Economic and Planning Secretary Ernesto Pernia
Overview

The Philippine economy had undergone a boom-and-bust cycle, growing 2.0 percent on the average in 1980 to 1989; 2.8 percent in 1990 to 1999; and 4.5 percent in 2000 to 2009.

The past few years showed the Philippines had broken the wicked cycle, sustaining an economic boom with consistent growth.

Economic expansion has been uninterrupted in the past 17 years, with the average growth rate in the last six years at the highest since the 1970s.

Data from the Philippine Statistics Authority showed that the Philippines expanded 7.0 percent in the second quarter of 2016, bringing the first semester growth to 6.9 percent. This means the economy can just grow by about 5.1 percent in the next six months of the year to reach the lower end of the full year target of 6 percent.

Economic and Planning Secretary Ernesto Pernia said the low inflation regime in the recent years fueled the expansion of the economy. He attributed the manageable inflation rate to the deceleration of housing, water, electricity, gas and other fuel rates as the average price of Dubai crude oil dropped  47 percent. 

The inter-agency Development Budget and Coordination Committee projected that Dubai crude oil will hover around $40 to $55 per barrel this year and to $50 to $65 per barrel from 2019 to 2022.

The favorable macroeconomic performance of the country has allowed for higher increases in the country’s gross domestic product per capita in recent years.

GDP per capita recorded an annual average growth of 4.3 percent in the past six years. The Philippines’ GDP per capita in 2015 stood at P74,770, up 4.2 percent from that in 2014.

Pernia also noted that the current account surplus had been supported by resilient remittances from migrant Filipino workers, strong business process outsourcing or BPO earnings, and rising tourism receipts.

Fast growing economy

The country’s chief economist said the Philippines was expected to remain one of the fastest growing economies in Asia, next to India and Vietnam which are expected to expand 7.4 percent and 6.2 percent in 2017, respectively.

Multilateral institutions such as the Asian Development Bank, World Bank and the International Monetary Fund see the Philippine economy growing 6.1 percent, 6.2 percent and 6.2 percent, respectively, in 2017.

“These only show that market players are keen that the country is growing its potential,” Pernia said.

On the demand side, household consumption, government spending, investment and exports of services were seen to be drivers of growth.

Pernia said low petroleum prices on the supply side may encourage business expansion, construction and infrastructure development, manufacturing resurgence, and real estate development following the business process outsourcing demand and tourism-related services. Wholesale and retail trade will also boost growth expansion.

Risks to growth

Despite the positive outlook for the country, risks to growth persist such as the uncertainty of the global economy with the fragile growth in Japan and the European Union, the slowdown in large emerging economies especially China, and geopolitical tensions in the Middle East which may extend the period of low oil prices that will affect jobs of migrant Filipino workers and remittances.

The recent impact of the Brexit, or the decision of the United Kingdom to leave the European Union, may also harm the economy, along with the maritime dispute in the West Philippine Sea.

On the domestic front, logistics bottlenecks could constrain economic activity and the growth performance, along with the delays in government infrastructure and reconstruction projects.

Pernia said weather shocks, like La Niña, while increasing agricultural production, may result into floods and destruction in urban areas.

He noted that despite the minimal share of mining in the economy (0.7 percent), the closure of mines as part of the campaign of the new administration toward responsible mining, could displace significant number of workers.

Challenges

There are still challenges the new administration must face and eventually surpass in the next six years.

The Neda chief noted that income inequality remained high across income classes and geographical location.

“Income inequality remains a big challenge for the country,” Pernia said.

Data showed that half of the country’s income goes only to the upper 20 percent or 49.6 percent while the bottom 20 percent is sharing just 5.9 percent.

In 2015, per capita income in all regions grew, except for Region VIII and ARMM, which experienced a contraction. The per capita income of the national capital region is still almost triple the national average.

“This shows that economic growth appears to be uneven across regions. We are hopeful that the new administration’s focus on equalizing spatial economic opportunities would ensure that all regions will benefit from and contribute to the country’s high economic growth,” Pernia said.

The problem of unemployment and underemployment in the country continues to persist.

The new administration, according to Pernia, aims to lower underemployment rate in the country to below 14 percent from the latest available data of 17.3 percent.

“Underemployment I think needs more attention actually. Still double-digits so we should try to reduce that, maybe by another five percentage points,” he said.

Pernia, who is also the director general of the National Economic and Development Authority, the agency in charge of the formulation of the Philippine Development Plan, said the government would try to address the issue of underemployment rate in the country before Duterte stepped down in 2022.

He said while unemployment rate was difficult to trim, the reduction in the underemployment numbers would be a good start to further pull down the problem in the long term.

“… we will resolve to reduce unemployment rate, especially underemployment rate, which is really the bigger problem. That should be doable and that should be good enough because it’s very hard to reduce unemployment,” Pernia added.

Pernia said the way to reduce the underemployment numbers was to create  better quality jobs.

“The way to do that is to create better quality jobs that are more regular and therefore more full time, that would reduce unemployment by itself, as well as... Reduce the unemployed family workers and self-employed, meaning also those in the informal sectors, so they’re not really full-time workers,” he said.

The unemployment rate in the country dipped 5.4 percent in July 2016 following the upbeat performance of the country’s economy, latest data from PSA showed.

Data from PSA’s Labor Force Survey for July this year showed that about 41 million Filipinos were hired during the period comprising 94.6 percent of the total labor force in the period.

The jobless rate, however, which is at 5.4 percent in July 2016, is equivalent to about 3.7 million unemployed persons. The unemployment rate recorded in the period was 1.1 percentage points lower than 6.5 percent in the same period in 2015. It is also 1.2 percentage points below the 6.6 full-year unemployment target of the government.

With the economy growing at a faster clip over the years, Pernia said the slow poverty reduction rate remained a “nagging” puzzle.

“Part of the explanation is the imbalance in the distribution of the benefits of growth across regions, sectors, and socio-economic classes. In particular, the dismal performance of agriculture, fishery and forestry needs urgent attention,” Pernia said.

“The rapid pace of population growth, with an additional 10 million Filipinos in just six years, has made poverty reduction a steep challenge,” he added.

Amid the risks and uncertainties, as well as structural challenges in the country, the Duterte administration through Neda is constructing the PDP for 2017-2022 that will spell out its 10 socio-economic agenda.

With higher growth and prospects for the country’s economy, the new administration has the responsibility and challenge to sustain such expansion to keep the Philippines one of Asia’s bright spots.

Topics: Economic and Planning Secretary Ernesto Pernia , boom-and-bust cycle , Philippine economy , gross domestic product , GDP
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