Cielito F. Habito, Ph.D. - Philippine Economic Society · Ateneo Center for Economic Research and...

Ateneo Center for Economic Research and Development

Cielito F. Habito, Ph.D. Ateneo Center for Economic Research & Development

Ateneo Center for Economic Research and Development Ateneo Center for Economic Research and Development

• 1st Half performance: building strength?

• Is growth being felt below?

• Too good to be true? Too good to last?

• Outlook: short & medium term

• Imperatives for sustained and broad-based growth

Overview


• Good news on 3 out 3(?)

– Presyo: Inflation at record lows

– Hanapbuhay: Unemployment lower?

– Kita: GDP grew by a surprising 7.5%

• Fiscal situation stabilized

• Net FDI up 26%

• Equity, currency markets resume bull run

Second Quarter ‘07 Highlights: Strengths


• Tax revenue performance falters (now recovering?)

• Foreign investment applications/ approvals down

• Export growth tapering

• Imports falling

• Employment quality worsening

Second Quarter ‘07 Highlights: Challenges

Presyo: Inflation is at historical lows…

…although still higher than most of our neighbors in Q2’07


Kita: RP’s 7.5% GDP growth now among

the fastest in the region


What Pushed Q2 Growth?

Production side: Services, Industry

Mining (33.3%)

Construction (21.0%)

Real Estate (21.4%)

Communication (12.5%)

Finance (11.8%)

Private Services (8.6%)

Trade (8.4%)


What Pushed Q2 Growth?

Metro

Manila

Spending side:

Government Construction (39.6%)

Government Consumption (13.5%)


Production Performance: Government Spending is main driver


Good News: Debt Service Taking

a Declining Share of Revenues

2006 2007 2008 (Projected)


Government Finances:

Tax & Revenue Effort Dropped Anew


Last Year’s Contradiction:

Foreign Investments surged…


…yet total investments had been falling

Implication: Domestic investment has fallen very sharply


FDI Picture Now Reversing?


A Glaring Problem:

RP Investment Lags Far Behind

Neighbors


ASEAN Investment Growth (Annual Growth Rates, %)


Foreign Trade Slowing trend in 2007


Is The Economy’s Growth Being Felt Below?

Self Rated Poverty:

Rises above 50% again

…and hunger hits a new record


Employment

Improving Picture?

But Where Are The New Jobs?


Profile of the Unemployed

• 2.8 million are unemployed (4 million under old definition)

• 6.4 million are underemployed;

mostly in agriculture

• Of the unemployed:

80% are within ages 15-35 years

61% reached high school or less


Where did the growth come from? Gross Regional Domestic Product Growth

Metro

Manila

Cagayan

Valley

Metro

Manila Northern

Mindanao


Where did the growth come from? Metro Manila and Surrounding Provinces

Metro

Manila

55.7% 61.2%


Growth for whom?

Metro

Manila

• Agriculture: 36.7% of workers, but only 8.2% of the growth in Q4 ’06

• Manufacturing & Trading: 45% of GDP

growth, but only 28% of workers

• The 3 fastest-growing regions (NCR, VI & VII): 62% of GDP growth; only 29% of the jobs

• Metro Manila and nearby provinces: 61% of growth, but only 39 percent of the jobs

Growth has not occurred where jobs are needed most.


Will the first semester

growth performance be sustained?

Or is it

too good to be true? Too good to last?


Too good to be true?

• Methodology has changed; series not comparable before 2004

• Dr. Medalla’s observations; quality erosion

• Substantial revisions on 2006 Data

• Contradiction between MISSI and NIA manufacturing sector data

• Statistical system undergoing serious review


Too good to last?

• Global economic outlook: moderating growth, persistent threats

• Domestic influences: downsides outweigh upsides?


•Global growth for ’07 upgraded to 5.2%, but still slower than 5.5% in ’06; expect more of same in ’08(5.2%); risks “remain tilted to the downside”

•US: Housing sector woes deepen; ’07 growth further downgraded to 2.0%, but up to 2.8% by ‘08

•Europe: Slight slowdown from 2.8%

(’06) to 2.6% (’07); 2.5% in ‘08

World Economic Outlook Updates: Revised Upward, But Still Slower Than ‘06


•Japan: Growth upgraded to 2.6%; up from 2.2% in ‘06

•Emerging Economies: Growth to remain brisk averaging 8.0% in’07; Will China finally succeed in slowing down?

•Electronics, Oil Outlook: Excess chip inventories slow ’07 exports; crude

oil approaching $100/barrel

The World Economy:

Moderating Growth (IMF)


Economic Risks

• Falling US Dollar

• Chinese “hard landing”

• Oil price shocks

• Fiscal crises due to aging populations

• “Blow up” in asset prices

• Environmental Risks

• Climate change

• Loss of freshwater services

The World Economy:

Intensifying Risks

• Tropical storms

• Inland flooding

• Geopolitical Risks

• International terrorism

• Weapons of mass destruction

• Wars

• Failed States

• Retrenchment from globalization

• Middle East stability

•


Low inflation

Surging overseas remittances

higher consumption spending

Government infra spending (but is it sustainable?)

New investment intentions by large companies (but mostly real estate)

Domestic Drivers


Falling imports

Slowing exports

Anemic investment

slower production

Weaker tax revenues slower government spending?

Oil price hike new round of inflationary pressure

Domestic Drags


Why Oil Prices Are High

• Supply disruptions (Afghanistan, Yemen) & geopolitical risks

• Worldwide refinery bottlenecks

• Moderate non-OPEC supply growth; OPEC supply controls

• Lower winter temperatures

• Rapid demand growth from fast-

growing giant economies


Projected GDP Growth - 6.2-7.2%

Inflation - 3.0-4.0%

Unemployment - 7.5-8.0%

Ateneo Macroeconomic

Forecasting Model

(AMFM)

2007-2008 Projections, Revised & Upgraded:


Quarterly Growth: Q1: 7.1%

Q2: 7.5% Q3: 5.5-7.1%

Q4: 5.0-7.3%

2007: 6.2-7.2%


Key Assumptions

• Dollar weakening/Peso appreciation to continue (approach P40/$)

• Oil prices in $80-90 range

• World economic growth to moderate further (esp. US)

• Domestic investment: more of the same


Key job-creators:

Agriculture & Tourism

Let DA “steer” but LGUs “row”

Strengthen SMEs in agri-processing

Seize tourism opportunities: surging tourism from China, India, Korea

Liberalize airline policy (e.g. EO 500-B)

Economic Imperatives


• Collect those taxes

• Spend the money right (more economics, less politics as basis for allocation)

• Expand & diversify exports (products and destinations)

Recover domestic

investor confidence!

Economic Imperatives


• Services prominence to continue BPO, Real estate, Communication, Transport, Tourism

Agriculture & agri-related industries High-value crops, Bio-fuels

Manufacturing mainstays

Food manufactures, design-based manufactures (furniture & housewares, high-end garments)

Outlook: Medium Term With right policy directions:


The Familiar Road: Muddling Thru

• Governance, revenues continue to slide; political turmoil persists/escalates

• Privatization proceeds dry up

• Massive reckless spending with questionable loans

• Deficits, debt mount anew

• Basic services, infra fall behind again

• Policies perpetuate a favored few

Two Roads Before Us


The Road Less Traveled

• Genuine reform: “turn over a new leaf”

• Quality appointments, sound policy decisions

• Strengthened revenue administration; virtuous circle of fiscal consolidation

• Policy environment for broad-based, job-creating growth

• Take-off on a new growth plane

Are our leaders up to the challenge?

Two Roads Before Us


E-mail: [email protected]

Cielito F. Habito, Ph.D. - Philippine Economic Society · Ateneo Center for Economic Research and...

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