Managing the growth dampeners

Last week, I cited seven drivers that could keep our economy’s full-year growth above 7 percent this year and next. Space constraints kept me from balancing off the analysis with offsetting growth dampeners, so I will address those downsides this time. Let me state at the outset that notwithstanding these, I remain optimistic that the economy can breach the seemingly conservative forecasts, hovering around 6.0-6.5 percent, being announced by various institutions. But this will not come without some extraordinary effort on the part of government, especially now that everyone’s eyes are on what it would do in its final two years in office.

My friend and fellow economic analyst Romy Bernardo, who produces Philippine economic forecasts for Global Source, doesn’t share my optimism. He has engaged me in a friendly bet (with a free lunch—if there’s such a thing—at stake) that growth this year would be “just a shade above 6 percent,” consistent with estimates I’m seeing from most analysts of late. In his BusinessWorld column yesterday, he cites five growth dampeners that lead him to be more circumspect: (1) delays in public typhoon reconstruction, (2) the daytime ban on trucks in Manila that is disrupting port operations, (3) a potentially damaging El Niño weather disturbance by midyear that can extend to early 2015, (4) still tentative recovery in goods exports, and (5) an impending tightening of monetary policy.

Of the five, El Niño, which is marked by a periodic significant rise in sea surface temperatures, may well be the least avoidable. State weather authority Pagasa has already monitored significantly higher sea surface temperatures in April. It warns of drier conditions, decreased rainfall and possibly stronger storms as El Niño manifests its presence in June. In our last severe El Niño episode in the latter half of 2009 through early 2010, full-year agriculture production dropped by 0.7 percent and 1 percent in those two years, respectively. Note, though, that this did not stop us from achieving a hefty 7.3 percent gross domestic product (GDP) growth in 2010, propelled by 12.1-percent and 7.1-percent growth in industry and services, respectively. With another El Niño episode widely anticipated this year into early next year, deliberate moves to mitigate its effects on agricultural production can already be taken. For example, in anticipation of the severe 1997-98 El Niño episode, the Ramos administration consciously undertook water-impounding projects in the most vulnerable parts of the country.

Bureaucratic inertia may so far be holding back typhoon-related reconstruction and rehabilitation activities, which I identified as one of the peculiar growth drivers this year. But this is not something we cannot overcome; we just need to get our act together. The same can be said on the truck ban issue. Resumption of more normal export markets would be a bonus, but again, shrinking exports in the first half of 2013 never stopped us from being the fastest-growing economy in Asia at the time. Meanwhile, tightening the money supply is entirely the call of the Bangko Sentral ng Pilipinas, which can avoid it if the more direct causes of rising inflation could be effectively addressed.

Could we again breach 7-percent economic growth this year, then? I’d say we can if government can act swiftly and decisively to ensure that the above factors will not be an impediment to achieving such growth. We must overcome start-up difficulties and crack the whip on the various government entities involved in the Yolanda reconstruction program, especially with the typhoon season again fast approaching. We must find a satisfactory solution to the truck ban conundrum that will keep commerce promptly flowing normally again. We must redouble efforts to diversify our export portfolio to further reduce overdependence on unstable electronics for our export earnings. We must address the cost-side causes of recent price increases, to preclude having to tighten money supply to the point of stifling growth. And we must already put in place necessary countermeasures against potential El Niño-induced droughts.

Is it quixotic on my part to talk about 7-percent growth, and up this year and next, when most official forecasts are saying 6 percent-6.5 percent? Well, consider the following: Early last year, the International Monetary Fund saw our 2013 growth at 6 percent, after initially predicting 4.8 and upping it later to 5 percent. The Asian Development Bank placed our growth outlook at 6 percent for both 2013 and 2014. The World Bank had forecast 6.2 percent (it raised this to 7 percent by October, but cut it again to 6.9 percent in December). The United Nations projected 6.2 percent; HSBC said 5.9; Banco de Oro had 6.5; Global Source initially said 5 percent, then upped it to 6.1; and the Focus Economics consensus forecast as of early last year was 5.6 percent. Government’s official 2013 projection was 5.5 percent-6.5 percent. In the end we got 7.2 percent, well beyond everyone’s forecasts.

I still clearly recall how back in the 1990s, when President Fidel Ramos’ dynamic leadership had the Philippine economy riding high, we at the National Economic and Development Authority were constantly seeing our annual growth targets being overshot. Have we simply become too accustomed to expecting less of ourselves, and have yet to get comfortable with the new reality that we can in fact do much better, even as we have in fact been doing so since 2010?

Romy and I do agree on one thing: There remains much for government to do, especially if I am to win our little bet. And it’s a bet he says he’d love to lose.

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