The Philippine government opened the new year with the forecast that the national economy is expected to surpass the targeted 5-to-6 percent growth. It claimed that 2012 was the “best years” of the economy under the three-year-old administration of President Aquino.
Both the government and the private business sector are bullish over the outlook for 2013. But the United Nations offers a contrary view. Economic Planning Secretary Arsenio Balisacan said on Monday that the 5- to 6-percent GDP for 2012 “is no big deal,” adding that the economy is likely to have expanded by about 6.5 percent in the fourth quarter, to allow it to reach the higher end of the target for 2012. But Benjamin Diokno, budget secretary during President Joseph Estrada’s administration, does not share Balisacan’s triumphalist outlook. He estimated growth at 4.5 percent—below the lower end of the official forecast. “I agree with Neda officials that this growth is attainable,” said Diokno, now of the University of the Philippines School of Economics. “In fact, I forecast growth in the fourth quarter will be within the range of 4.5 percent.”
In its Global Economic Outlook 2013-2014 report, the UN said: “For years after the eruption of the global financial crisis, the world economy is still struggling to recover. During 2012, global economic growth was weakened further. A growing number of developed economies have fallen into double-dip recession. Those in severe sovereign debt distress moved even deeper into recession, caught in the downward spiraling dynamic from high unemployment, weak aggregate demand compounded by fiscal austerity, high public debt burdens, and financial sector fragility.
“Growth in major developing countries and economies in transition has also decelerated notably, reflecting external vulnerabilities and domestic challenges. Most low-income countries have held up relatively well so far, but now face intensified adverse spillover effects from the slowdown in both developed and major middle-income countries. The prospects for the next two years continue to be challenging, fraught with major uncertainties and risks slanted towards the downside.”
According to UN baseline forecasts, growth of the world gross product (WGP) is expected to reach 2.2 percent in 2012 and is forecast to remain well below potential at 2.4 percent in 2013 and 3.2 percent in 2014. “At this moderate pace, many economies will continue to operate below potential and will not recover the jobs lost during the Great Recession,” the report said. For many developing countries, and this includes the Philippines, “the global slowdown will imply a much slower pace of poverty reduction and narrowing of fiscal space for investments in education, health, basic sanitation and other critical areas needed for accelerating progress to achieve the Millennium Development Goals.”
The economic crisis in the euro area could continue to worsen and become more disruptive, the report said. “The United States could fail to avert a fiscal cliff. The slowdown in a number of large developing countries, including China, could well deteriorate further, potentially ending in a ‘hard landing,’” it said. “Geopolitical tensions in West Asia and elsewhere in the world might spiral out of control. Given dangerously low stock-use of basic grains, world food prices may easily spike with any significant weather shock and take toll on the more vulnerable and poorest countries in the world.”
Pointing out the impact of the economic slowdown in the developed economies, the UN report also said: “The economic woes of the developed countries are spilling over to developing economies in transition through weaker demand for their exports and heightened volatility in capital flows and commodity prices. Their problems are also home-grown, however. Growth in investment spending has slowed significantly, presaging a continued deceleration of future growth if not counteracted by additional policy measures.”
Against this grim outlook in the developed economies, it is hard to explain how the government and its echoes in the private business sector could be so buoyant in their prospects. According to reports in the business pages of Philippine newspapers, the country’s largest corporations are looking forward to even faster economic growth “and the Philippines finally getting investment-grade status, which is expected to pave the way for more foreign investments to pour into the country.”
Some bankers say that “overall, we expect the momentum of domestic demand and the country’s good macroeconomic numbers to outweigh the uncertainties in Western economies. Given our positive economic outlook, we will proceed with our expansion programs.”
Other businessmen said 2013 would be a “super year” for the Philippines because the election spending midyear would boost government spending. But the government has kept a tight rein on spending for infrastructure under its Public-Private Partnerships program. Only eight of the planned 24 PPP projects were rolled out in 2012—too late to make a significant impact on stimulating growth for the balance of President Aquino’s term.
Whatever economic growth was gained in the last quarter of 2012 is threatened by political instability produced by the administration’s punitive action against local governments it considers unfriendly. The suspension of Cebu Gov. Gwen Garcia on charges of abuse of power has provoked political turmoil disruptive to economic momentum. The government does not need this disruption.