No Free Lunch

What’s better, what’s worse

/ 05:28 AM December 28, 2018

As the year 2018 draws to a close, is the Philippine economy in better or worse shape compared to a year ago? We can examine a number of indicators, but let’s start with my “PiTiK” test based on the three most prominent ones: presyo, trabaho and kita (prices, jobs and incomes). Based on these yardsticks, the score is one up, and two down.

Everyone knows we’re worse off on prices this year, with the past year having been marked by faster price inflation not seen in nine years, especially for goods making up a larger portion of the budgets of the poor. Thus, while overall inflation averaged 6 percent as of last report, it was actually 9.5 percent for the bottom 30 percent of the population, according to the Philippine Statistics Authority. This is based on the peculiar budget composition of the lowest income groups, which is much heavier on food.


As for jobs, things look better than they did last year, as joblessness across the four quarters averaged 5.3 percent, down from 5.7 percent in 2017. Net job creation averaged 826,000 jobs, whereas 2017 actually saw a net jobs decline of 663,000.

As for gross domestic product, which measures aggregate production and incomes in the economy, growth was slower compared to a year ago, averaging 6.3 percent over the first three quarters of the year, from 6.8 percent last year. Even so, 6.3 percent remains among the fastest economic growth rates in the world, so it’s not really bad news.


What else is better? Growth in overall investments—that is, the sum of all foreign and domestic investments, and by both government and the private sector—is actually better this year: Total fixed capital formation zoomed with nearly 17 percent annual growth as of the first three quarters, after growing by less than 10 percent in the same period last year. As of October, $8 billion in net foreign direct investments had come in, improving on the $6.5 billion posted in the same period last year. All these point to better confidence by business investors in the economy’s prospects, at least earlier in the year.

But this seeming optimism appears to have changed by the fourth quarter, when the regular survey on business confidence taken by the Bangko Sentral ng Pilipinas showed a significant decline to 27.2 points from 43.3 points last year—denoting the net percentage of business people who see improved business prospects over those who believe it will worsen. The similar measure of consumer confidence turned from positive to negative, from 10.2 points to -7.1 points.

The same decline in confidence is mirrored by the substantial drop in the stock market from a year ago, when the Phisix index was at 8,500, to less than 7,500 now. The problem with declining confidence is that it becomes self-fulfilling: Businesses and consumers hold back, thus slowing down the economy, and making their expectations real.

What else got worse? Three things are weaker this year: export earnings, overseas remittances and the foreign exchange rate, with the last being influenced by the first two. Our earnings from exports as of the first three quarters are down by nearly $1 billion, from $51.83 billion last year to $50.96 billion this year. I wrote recently of how this export decline was accompanied by a 16.8-percent surge in our import bill, leading to a widening trade gap that will top $40 billion this year from $27 billion last year, growing by nearly half.

Meanwhile, growth in remittances has slowed down further to 3.1 percent this year, from 4.3 percent last year, and both forces lead to a weakening supply of foreign exchange relative to demand. The peso decline from P50 to P53 to the US dollar—a major factor in this year’s higher inflation rate—is an offshoot of these weakening trends.

Will 2019 be better? With the coming round of election spending, perhaps. Based on the lower confidence described earlier, perhaps not. Analysts believe the world economy will be better, and that would help. But experience shows how fickle economic prospects could be in the face of changing politics. And on this, things have gotten less predictable lately, both domestically and internationally. So for now, it’s anybody’s guess.

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