Economic drivers and dampeners

The Philippine Statistics Authority will release the preliminary 2014 fourth-quarter economic growth figures shortly, and most observers expect the full-year gross domestic product (GDP) growth rate to end up shy of 6 percent. While this is disappointing only to the extent that it’s a significant slowdown from last year’s exceptional 7.2 percent, even a growth rate of 6 percent or slightly less would still put us among the fastest-growing economies in the region today.

Early last year, I felt that maintaining growth above 7 percent was achievable, based on seven economic drivers. I identified then, as reasonably likely to boost the economy’s growth in 2014, the following: (1) major infrastructure projects expected to come on-stream; (2) massive reconstruction anticipated to be undertaken in areas devastated by the Bohol earthquake and Supertyphoon “Yolanda”; (3) more new manufacturing projects coming up, including from foreign direct investments and Filipino manufacturing operations being relocated back from China; (4) growth in agriculture expected to normalize from the sector’s unusually sluggish (0.9 percent) performance in 2013; (5) new investments being made in preparation for the Asean Economic Community; (6) sustained growth in overseas remittances; and (7) new investments anticipated in Bangsamoro areas after the signing of the peace agreement between government and the Moro Islamic Liberation Front.

My regular readers would know that I even agreed to a bet (for a free lunch) with former Cabinet colleague Romy Bernardo, who also writes a column, in another paper. He saw growth settling at only slightly above 6 percent, citing the serious port congestion problem precipitated by the Manila truck ban, expected droughts due to another expected El Niño episode, and the negative effect on government spending of the adverse Supreme Court ruling on the government’s Disbursement Acceleration Program (DAP). I also foresaw these dampeners as exerting downward pressure on last year’s growth prospects. But I still believed that the seven drivers would overpower the dampeners enough to bring our economy to another year of stellar growth.

I was wrong, of course. Even with the official full-year growth figures not yet in, I have already conceded the bet, even as my friend Romy’s forecast also appears to be an overestimate as well

(albeit less so than mine). With hindsight, at least three of my seven identified drivers did not quite play out the way I had anticipated. First, the public-private partnership (PPP) infrastructure program continued to be beset with further delays, having been hounded with snags since the start of this administration. A big-ticket project (the Cavite-Laguna Expressway) found further delay with the decision to rebid the project despite a prior decision that already chose the winning

bidder. Second, implementation of the disaster reconstruction work proved to be excruciatingly slow, with little to show more than 14 months

after the calamities struck. Third, rather than normalize as I had hoped, agriculture unexpectedly further turned for the worse, dipping by 2.5 percent in the third quarter, deeper than the deepest quarterly dip in the previous year. This was not so much from El Niño droughts, which turned out not to be a significant issue, but more because of the lingering effects of the 2013 natural disasters and the new ones that hit in the past year.

I also had more faith in the government than appeared warranted, having expected the port congestion issue to be addressed well before it took a deeper toll on the economy. Neither did I expect that government spending cutbacks in the wake of the DAP ruling would nearly duplicate the 2011 cutbacks that dragged us down to a mere 3.9-percent growth then. I had indicated before that my bet on 7-percent growth was essentially a bet on government’s ability to do what it needed to do to achieve it. Unfortunately, that didn’t quite play out.

What about 2015? Will things be better? I actually see even more reason to expect faster growth this year than I was seeing early last year. The

seven drivers I listed then remain applicable this year, even more so if we can assume (and here lies the big question) that programmed infrastructure and disaster-related reconstruction projects will finally take off, that the port congestion problem will be licked, and that agriculture will return to its usual 2 to 3-percent average growth (which in itself is not even good enough). And on top of these seven drivers, I could add at least two more for this year. One, oil prices have declined so dramatically and the significant cost-cutting impact of this should have a largely positive influence on both the demand and supply sides of the economy. Two, election-induced spending would start being felt in the latter part of the year. Note that since 2002, the economy’s growth averaged 7 percent over the four election years we’ve had, while growth in nonelection years averaged only 4.5 percent. To me, this affirms elections’ boosting effect on the economy, and we would start feeling this later this year. More important than the growth figure itself, signs that the growth is beginning to have broader benefits are now

apparent, with our growth translating into much more quality jobs than we’ve seen in recent memory (as I wrote about two weeks ago).

Will I bet on 7-percent growth again this year? I’m actually to pay up Romy on last year’s bet shortly, and will buy lunch for Socioeconomic Planning Secretary Arsi Balisacan as well. Maybe I’ll check what Romy and Arsi are prepared to bet on first.

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