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No Free Lunch

A slower year

There’s good news and bad news in the slowdown our economy is experiencing lately. The bad news is the slowdown itself, and the interrupted momentum after eight straight years of sustained 6-7 percent gross domestic product (GDP) growth. Note that I’m still not saying it’s a lost momentum, especially with my Ateneo Economics faculty colleague and economic modeler Dr. Louie Dumlao maintaining that the economy’s sustainable potential economic growth rate remains 6-7 percent. This implies that the circumstances currently pushing the economy below its potential growth rate are transitory, and if and once overcome, we would resume growing within that higher trajectory.

The good news is that even at 5.5 percent, we would be growing at well above the 3.2-percent global GDP growth and the 4.1 percent average for emerging markets and developing economies this year, as projected by the International Monetary Fund—which has already downscaled its growth forecast twice so far due to the escalating US-China trade war. That still puts us among the fastest-growing economies worldwide.

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Examination of our GDP growth data spanning four decades would show that in the 1981-1990 decade, we averaged only 1.8-percent annual GDP growth, which improved to a 2.9 percent average in the 1990s. This went up further to 4.8 percent in the 2001-2010 decade, and since 2011 to last year, our average annual growth rate was 6.2 percent. We have thus indeed achieved a higher growth trajectory since 2010.

Now that we’ve fallen below 6 percent for two quarters, the question is whether we can still possibly rally in the last two quarters to stay on course and end 2019 with at least
6-percent GDP growth. Doing the arithmetic, this requires that the economy grow by an annual rate of at least 6.45 percent in the last two quarters. Given current developments and trends, both internal and external, I consider that a bibingka in the sky. Let me explain why.

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I’ve already explained the internal developments in my last article, and it revolves around what appears to be the low absorptive capacity of our government’s key infrastructure agencies. This has completely turned around our double-digit growth in fixed capital formation (that is, total real investment) from a double-digit average growth rate since 2010, to a negative growth, or drop, of even larger magnitude this year so far. Coupled with that is a significant slowdown in consumer spending growth, even as prices continue to stabilize and the inflation rate is expected to fall even further the rest of the year.

This is likely linked to one of the external trends slowing us down, which is the significant slowdown in wage remittances from overseas Filipino workers (OFWs), known to be a dominant driver of consumer spending. Annual OFW remittance growth was just 3.2 percent in the first half of this year, less than half the 2011 growth rate of 7.2 percent, after having averaged double-digit growth in the previous decade, topping 20 percent at its peak. Anecdotal evidence has been cited on falling deployment of Filipino seafarers, linked to recent observations that Philippine maritime schools are found to have fallen below world quality standards, while other nationalities gain higher shares of the market.

Meanwhile, our production sectors, especially agriculture and manufacturing, have been a drag on the economy. I’ve written much on agriculture, and will not say more now. But the slowdown in manufacturing growth is the other current worry. Since 2010, it had grown faster than the overall economy, at an average of 7-8 percent. In the last several quarters, however, it has averaged only above 4 percent, although the good news is that 60 percent of the sector is still growing faster than 7 percent. The 40 percent that slowed down, especially electronics which has turned negative for the first time in recent memory, has been casualty to the US-China trade war, which has depressed world trade as a whole. And it’s a war that’s not about to wind down any time soon.

All told, we’re in for a slower economy in 2019, and can only hope for a rebound in 2020.

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TAGS: Cieltio F. Habito, Economic Slowdown, GDP growth, No Free Lunch
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