Short- to long-term challenges
On balance, the Philippine economy has lately seen more good news than bad. Based on my usual PiTiK (presyo-trabaho-kita or prices-jobs-incomes) indicators, the short-term picture is one where two out of three are good. There’s good news on the short-term data on prices and jobs, while the news is actually only half bad for incomes, as reflected in GDP growth.
Regarding prices, overall inflation has gone back to where it was a year ago, with the February annual inflation rate of 3.8 percent having the exact same value as one year ago, having peaked at 6.7 percent last September-October. More significant for the poor is that month-on-month data show prices of food as a whole to have actually fallen from the previous month, as it has in three of the last four months. The Bangko Sentral ng Pilipinas expects overall inflation to stabilize within 3-4 percent this year, where it has averaged over the past 10 years.
I wrote of the latest jobs data in my last article, and the news is also good overall, with both unemployment and underemployment rates trending down. The challenges that I pointed out include college graduates comprising a continuing high proportion of the unemployed (21 percent), and small businesses (that is, entrepreneurship) showing a decline, even as rising wage and salary jobs represented good news.
Considered not-so-good news is GDP growth, only because overall income growth slowed down for two years in a row. But at 6.2 percent, our GDP growth continues to be among the world’s fastest, with the global economy having grown a mere 3.7 percent, where faster-growing emerging markets and developing economies like ours have averaged only 4.6 percent. To say that even our slower GDP growth this past year is nothing to scoff at is thus an understatement.
So what lies ahead for our economy, and what challenges do we face? Yesterday, the World Bank unveiled its latest Philippine Economic Update, noting how our economy’s growth has lately been driven more by private investment and public spending, hence better quality spending. This was in the face of faster inflation having dampened private consumption spending, which has traditionally driven our economic growth on the back of erstwhile brisk but now slowing growth in overseas remittances. The bank sees GDP growth speeding up again this year and next, albeit slightly. Even so, growth this year is already threatened by continued delay in the approval of the government’s 2019 budget, and El Niño-induced drought that has already begun to take a toll on our agricultural areas.
What we need to particularly watch out for, the World Bank notes, are the threats that challenge our economic prospects over the long term. On the economic front, we need to be able to sustain growth in investment, especially with latest data pointing to the threat of a slowdown, particularly in foreign investments. Also imperative are improvement in labor market conditions to boost productivity, and reforms to lower the inordinately high cost of doing business in the country. I wrote recently of high trade costs due to excessive greed and lack of competition and regulation in the trade services industries, a hurdle that I pointed out to be stacked against small businesses. Legal barriers to greater foreign investment participation also need to be addressed.
But most insidious among our longer-term threats are those pertaining to our human resource base, often cited to be a major advantage for the Philippines now and well into the future. But quantity of human capital is not enough, given severe threats on the capacities of our emerging human resource pool due to poor nutrition and health, and weak education. The bank notes the lack of government-wide recognition of the critical threat posed by the very high rate (33 percent) of stunting among young Filipino children due to poor nutrition, which compromises the intellectual and physical productivity of our future labor pool. It points to the need to improve learning outcomes from our entire educational system. And it stresses the need to widen access to quality healthcare.
Failing in all these, our economic future stands on a rather fragile base.
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