Dark clouds over the economy

When I give economic briefings I use color coding in my PowerPoint slides, conditioned by my being a faculty member at the Ateneo de Manila University: Good news comes in blue, and bad news comes in (ahem) green. (Before the hoots from alumni of archrival De La Salle University get louder, I quickly clarify that while I now wear a blue shirt, my underwear is maroon—the color of my true alma mater, the University of the Philippines.) In the past two years or so it has been all blue bullets in my slides, summarizing my usual “PiTiK” test of presyo (prices), trabaho (jobs), and kita (incomes), reflecting good news on all three key measures. The inflation rate has been low, the unemployment rate has been declining, and growth in our gross domestic product (GDP) has been brisk—the fastest in Southeast Asia and among the fastest worldwide, in fact.

But it looks like I will have to recolor my slides for upcoming briefings. Is the economy heading south? To the casual observer, it would seem so. Based on my “PiTiK” test, the latest numbers appear to be heading in the wrong direction. The latest report on inflation has the overall price level rising by 3.4 percent—the steepest increase seen in the last 28 months—and continuing the steady speed-up seen in recent months. Data from the latest quarterly labor force survey taken last January show the unemployment rate rising again to 6.6 percent, reversing successive improvement in the past three years, having already dipped below 5 percent last year. GDP growth, while still fast by regional standards, has actually slowed down over the last four quarters.
Beyond “PiTiK,” the much-watched peso-dollar exchange rate has also risen beyond P50 to the dollar. There is also the disturbing news that the Philippines’ current account—the balance of current foreign exchange inflows net of current outflows—has turned negative for the first time since 2002. This is because our exports (representing foreign exchange inflows) barely grew last year (0.6 percent), while imports (which lead to outflows), which are mostly inputs, rose by 16.6 percent. Meanwhile, remittances by overseas Filipino workers had generally slowed from around 7 percent annual growth in recent years (it had reached double-digit growth in the past decade), to only 5 percent last year. Deployment of OFWs has also slowed down from around 6 percent annual growth 10 years ago, to less than 1 percent in 2015—the latest data available.

Why are prices rising faster? The increases are generally attributed to rising oil and food prices. The first is beyond our control; the latter is. Economic Planning Secretary Ernesto Pernia notes that inflation in rice and meat have accelerated, and eyes importation constraints imposed by the government as likely culprits. I have long pointed out the folly of unduly shielding our domestic markets at the expense of the consuming public, when there are better ways to assist our domestic producers without wide collateral damage. The rising joblessness could be an alarm signal of a slowing economy, as jobs are closely tied to production. What bothers me about the uptick in unemployment is that it has come even when the labor force participation rate went down to 60.7 percent from last year’s 63.6 percent; that is, there were actually less who actively looked for work. We won’t know actual first-quarter GDP growth until late May, but jobs data suggest that the growth momentum of recent years may be at risk, and we had better watch things closely.

To the weak of heart, these trends signal worse times ahead. Is the oft-cited Philippine economic success story of the last six years unraveling, yet again? Those of us who remember the economic dynamism we witnessed in the 1990s, only to hit another bust in succeeding years, may be getting a sense of déjà vu, of having been here before. While what’s happening outside the Philippines clearly affects us—and things haven’t exactly been upbeat out there lately—we have demonstrated resilience to outside shocks before. Thus, I’m not too worried yet. But if we ourselves insist on doing the wrong things and cause our own problems, then indeed we must worry.
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