Sustaining steam

As we look to the year ahead, our main challenge on the economic front is to regain the momentum our economy had begun to build after 2012, a momentum that appears to have slowly dissipated in the last three years. We’ve seen this shift in momentum in terms of my usual PiTiK test of presyo, trabaho and kita—price stability, job generation, and incomes.

We can look at official data from the Philippine Statistics Authority for the two three-year periods of 2013-2016 and 2016-2019, for comparability. The previous period saw an average annual inflation rate of 2.5 percent (with a historical low of 1.4 percent in 2015), while the last three years’ average was a higher 3.6 percent (with a 10-year high of 5.2 percent in 2018). Between October 2013 and October 2016, the economy generated 3.93 million net new jobs; between October 2016 and October 2019, it was only 1.48 million. Average annual GDP growth in 2013-2016 was 6.6 percent (peaking at 7.2 percent in 2013); it slowed to 6.4 percent in 2016-2019, with a successive deceleration in the last four years, falling short of 6 percent last year. These last four years’ continuous slowing down has not happened since the start of the century, and must be arrested right away if we are to sustain the economy’s steam.

Make no mistake: The economy still looks good, and remains among the fastest-growing in the world, even in the midst of external challenges posed by a generally sluggish world economy weighed down by the US-China trade war. We have weathered the resulting decline in international trade and disruption of global production networks with increased domestic demand for our goods and services via private and government consumption and investments.

Even so, it’s discomforting to see signs of dissipating momentum in the numbers cited earlier. Of greatest concern should be the drastic slowdown in investment in the country, from both foreign and domestic investors. Fixed capital formation, after growing annually at an average of 13.2 percent in 2012-2018, barely grew at 1.5 percent last year. This was because foreign direct investment (FDI) inflows fell by more than a third (a 32.8-percent annual drop as of the first 10 months, the latest data available)—and yet our neighbors mostly saw theirs continue to rise. Investments in durable equipment also showed a disturbing drop over the last three quarters, making the annual figure fall by 5.2 percent last year, even as it had consistently zoomed by double digits in previous years. Are these trends telling us something about business confidence in the Philippine economy?

We all know why such business confidence might be on the wane. Much has been said about the current leadership’s seeming aversion to working with big business at the outset, which evolved into seeming outright hostility in the past year — at least based on the President’s own diatribes. The government started out declaring that its ambitious “Build, build, build” program was to rely more on loans and taxpayer money, rather than public-private partnerships, even as these PPPs had mostly been an effective mode for providing for our vital facilities. And with only two BBB projects completed after nearly four years, the confidence boost that a rapid infrastructure development could otherwise bring may be provoking second thoughts among those who matter most.

But the more chilling effect on investments has come from loud antibusiness rhetoric highlighted by the recent attacks on our private water concessionaires that had come to the rescue of a country teetering on a water crisis in the late 1990s — but are now portrayed as devils. The diatribes followed government’s outright rejection of carefully considered and collegially approved contracts with the private water service providers, which had been constantly reaffirmed by previous governments. These and other related recent developments come at the worst time when FDIs are sliding and domestic investment is losing steam.

How could we sustain the steam? I will discuss various ways in forthcoming columns, but certainly one of the most important is for government to simply keep its word.

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