The State of the Nation:

Ateneo Center for Economic Research and Development

Cielito F. Habito, Ph.D.Cielito F. Habito, Ph.D.Columnist, Philippine Daily InquirerColumnist, Philippine Daily Inquirer

Director, Ateneo Center for Economic Research & Director, Ateneo Center for Economic Research & DevelopmentDevelopment

Cielito F. Habito, Ph.D.Cielito F. Habito, Ph.D.Columnist, Philippine Daily InquirerColumnist, Philippine Daily Inquirer

Director, Ateneo Center for Economic Research & Director, Ateneo Center for Economic Research & DevelopmentDevelopment

The Economic The Economic PerspectivePerspective

The Economic The Economic PerspectivePerspective

Of the three key variables that matter most to the common Filipino - prices, jobs, and incomes - all three now show qualified improvement, but the jobs situation remains weak and tentative.

What’s the State of the Philippine Economy?



• Prices remained stable• Employment shows some

(qualified) improvement• GDP grew at a (surprising)

record 6.9 percent • Equity, currency markets on

bull run

First Quarter ‘07 Highlights:Strengths


• Fiscal balance deterioratingRevenues below targetDeficit exceeding target

• Foreign direct investment fell in Jan-Apr 2007

• Export growth has weakened• Imports fell in real terms

First Quarter ‘07 Highlights:Threats

Inflation is at a historic low…

Year Inflation Rate (%)

2002 3.12003 3.12004 5.52005 7.62006 6.2

2007 Target 4.0-5.02007 To Date 2.7

J un-07 2.3

…although still higher than most of our neighbors in 2006

Only Indonesia has a worse inflation

record

-1.2 -0.1

0.4

2.2

3.1 3.2

4.3

6.3

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

TWN CHI SIN KOR MAL THA RP INDO

Inflation Rates, Percent

-1.2 -0.1

0.4

2.2

3.1 3.2

4.3

6.3

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

TWN CHI SIN KOR MAL THA RP INDO

Inflation Rates, Percent


Employment: Improving Picture?

Latest Year PrevPeriod Ago Period

Unemployment Rate (%) (Apr '07) (Apr '06) (J an '07) Old Definition -- -- New Definition 7.4 8.2 7.8

J obs Generated ('000) 1007 478 1515Agriculture 583 288 -38Industry 26 -4 103Services 431 195 1450

Underemployment Rate (%) 18.9 25.4 21.5

J obs by Type ('000) Apr '07 Percent Apr '06 Percent Change Wage & Salary Workers 17,224 51.1 16,546 50.6 678 Own Account Workers 12,067 35.8 12,262 37.5 (195) Unpaid Family Workers 4,415 13.1 3,891 11.9 524

YearAverage

(J an-Apr 2007)

Employment (NSO-LFS)

7.6

1,27826661950

20.2

…but the devil is in the details

Latest Year PrevPeriod Ago Period

Unemployment Rate (%) (Apr '07) (Apr '06) (J an '07) Old Definition -- -- New Definition 7.4 8.2 7.8

J obs Generated ('000) 1007 478 1515Agriculture 583 288 -38Industry 26 -4 103Services 431 195 1450

Underemployment Rate (%) 18.9 25.4 21.5

J obs by Type ('000) Apr '07 Percent Apr '06 Percent Change Wage & Salary Workers 17,224 51.1 16,546 50.6 678 Own Account Workers 12,067 35.8 12,262 37.5 (195) Unpaid Family Workers 4,415 13.1 3,891 11.9 524

J obs by Sector Apr 2007 Apr 2006 New J obsAgri 11,865 11,281 583 Agri, Hunting & For 10,280 9,842 438 Fishery 1,550 1,439 112Industry 5,258 5,232 26 Manufacturing 3,067 3,172 -105 Mining 169 163 5 Utilities 135 131 4 Construction 1,854 1,733 121Services 16,617 16,186 431


Profile of the Unemployed

• 2.7 million are unemployed under new definition; about 4 million based on old definition, i.e.+ frustrated jobseekers

• 6.4 million are underemployed; mostly in agriculture

• Of the unemployed:80% are within ages 15-35 years61% never went beyond high school


RP growth currently slower than most…ASEAN GDP Growth Rates, 2002-2006

INDOMAL

PHIL

SIN

THAI

VIET

CAM

LAO

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2002 2003 2004 2005 2006

Year

%

Indonesia

Malaysia

Philippines

Singapore

Thailand

Vietnam

Cambodia

LaoPDR


What pushed Q1 growth?

Metro Manila

• Production side: Services Finance (13.4%)Real Estate (18.6%)Communication (10.1%)

• Spending side: Government Consumption (13.1%)Public Construction (16.9%)Exports (9.1%)


Bullish Markets, Empty Pockets: Why the “Disconnect”?


• Sectors with broader and poorer base Sectors with broader and poorer base (esp agriculture) grow the least(esp agriculture) grow the least

• Fastest growers are low-job sectorsFastest growers are low-job sectors• Job generation has been weak and of Job generation has been weak and of

low qualitylow quality• Market trends driven more by global Market trends driven more by global

forces than by domestic developmentsforces than by domestic developments• Political & economic power structures Political & economic power structures

continue to bias growth, limit benefitscontinue to bias growth, limit benefits

• Sectors with broader and poorer base Sectors with broader and poorer base (esp agriculture) grow the least(esp agriculture) grow the least

• Fastest growers are low-job sectorsFastest growers are low-job sectors• Job generation has been weak and of Job generation has been weak and of

low qualitylow quality• Market trends driven more by global Market trends driven more by global

forces than by domestic developmentsforces than by domestic developments• Political & economic power structures Political & economic power structures

continue to bias growth, limit benefitscontinue to bias growth, limit benefits Ateneo Center for Economic Research and Development

Why is it not good news for most Filipinos?


Where did growth come from (2006)?

J obs

AGRI/ FISHERY/ FOR 1.9 8.3 0.4 12,164 36.7

INDUSTRY SECTOR 3.3 22.4 1.1 4,895 14.8Mining & Quarrying -8.1 -0.4 116 0.3Manufacturing 4.4 22.3 1.1 3,052 9.2Construction 4.7 3.5 0.2 1,619 4.9Elect, Gas & Water 8.3 4.6 0.2 108 0.3

SERVICE SECTOR 7.0 69.3 3.3 16,126 48.6Trans, Comm & Stor 8.0 14.5 0.7 2,471 7.4Trade 6.1 22.5 1.1 6,226 18.8Finance 8.3 8.5 0.4 372 1.1Own Dwell & R Est 6.7 6.0 0.3 815 2.5Private Services 8.3 13.6 0.7 4,700 14.2Govt Services 5.2 4.2 0.2 1,542 4.6

GROSS DOM PROD 4.8 100.0 4.8 33,185 100.0

INDUSTRYGrowth Rate (%)

Contrib to

Growth (%)

-24.7

Percent of J obs

Contrib to Growth Rate (%)


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

Metro Manila

2004 2005

RP 6.2 5.0 100.0 100.0NCR 8.4 7.1 31.9 44.7CAR 3.7 1.1 2.3 0.5

I 5.4 6.0 3.0 3.6II 10.4 -5.4 2.0 -2.4III 1.8 2.9 8.5 5.1IVA 4.0 3.0 12.5 7.8IVB 4.1 6.5 2.8 3.6V 5.7 5.0 2.8 2.8VI 7.6 5.9 7.3 8.6VII 6.9 6.0 7.1 8.5VIII 5.2 4.0 2.2 1.8IX 4.1 7.2 2.6 3.7X 7.2 3.8 4.8 3.7XI 6.5 5.0 4.6 4.6XII 5.8 2.3 3.5 1.6

ARMM 5.2 3.9 0.9 0.7XIII 3.1 3.5 1.3 0.9

Share to Total

Contrib to Growth

GRDP Growth RateREGION

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 is still not occurring where jobs are needed most.


The Great Disconnect:Foreign Investments surged last

year…Latest Year Prev YearPeriod Ago Period Average

Q3 '05 Q2 '06 Q1-Q3 '06

Total Approved FDI 121.1 124.2 314.9 155.7 BOI 43.1 46.4 18.7 PEZA 122.9 266.0 114.4 41.7 SBMA -14.7 40.2 3,422.3 9,209.6 CDC 6,365.5 -31.0 348.5 4,193.0

J an-Nov '05

Growth Rate

J an-Nov '06

Growth Rate

FDI Inflows (BSP) 2,000.0 112.8 1,328.0 50.6

Foreign Investment Indicators (% gr)

Q3 '06

70.0


……yet total investments still yet total investments still fellfell

……yet total investments still yet total investments still fellfell

2007Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 P

Capital Formation -8.9 -4.1 -0.8 -9.1 0.3 1.5 8.0 1.8 0.6 Fixed Capital -8.1 -2.5 0.0 -4.6 2.4 -1.0 2.1 2.2 2.7 Construction -0.9 4.5 6.0 -6.5 8.0 2.4 6.7 5.7 7.3 Public -13.3 -1.6 7.6 -12.0 36.5 11.8 20.5 39.6 16.9 Private 2.6 4.9 3.1 -5.4 -3.2 -4.0 1.2 -8.7 2.0 Durable Eqpt -12.3 -7.6 -4.1 -2.9 -0.7 -4.1 -1.9 -0.5 -0.4 Br Stck & Orch Dev -0.1 2.5 -0.4 1.1 -1.7 -1.7 1.1 0.8 2.2

2006Indicator

2005

Implication: Implication: Domestic Domestic investment fell even more investment fell even more

sharplysharply

Implication: Implication: Domestic Domestic investment fell even more investment fell even more

sharplysharply


Latest Bad News:

Foreign direct investments fell in January-April 2007


ASEAN Investment Growth

Country 2002 2003 2004 2005 AverageCambodia 20.9 41.7 14.1 1.9 19.7Indonesia - 4.5 10.8 6.4 4.2 4.2Malaysia 7.6 - 4.1 13.8 - 4.3 3.3

Philippines - 4.3 1.5 9.5 - 4.3 0.6Singapore - 4.9 - 32.6 34.6 0.9 - 0.5Thailand 6 13.7 13.8 12.2 11.4Viet Nam 12.7 11.9 10.6 8 10.8


ASEAN Investment Growth

19.7

4.23.3

0.6

- 0.5

11.410.8

- 5.0

0.0

5.0

10.0

15.0

20.0

Cambodia Indonesia Malaysia Philippines Singapore Thailand Viet Nam

19.7

4.23.3

0.6

- 0.5

11.410.8

- 5.0

0.0

5.0

10.0

15.0

20.0

Cambodia Indonesia Malaysia Philippines Singapore Thailand Viet Nam


Foremost Challenge: Spread the benefits of economic growth (more broad-based, job-creating growth)

Foremost Challenge: Spread the benefits of economic growth (more broad-based, job-creating growth)

Economic Imperatives


Broad-based growth from: Agriculture & TourismLet LGUs row, while DA just steers

Replicate NorMin Veggies storyFoster SME agri-processingSeize tourism opportunities:

surging tourism from China, India, Korea

Ease up on our skies

Broad-based growth from: Agriculture & TourismLet LGUs row, while DA just steers

Replicate NorMin Veggies storyFoster SME agri-processingSeize tourism opportunities:

surging tourism from China, India, Korea

Ease up on our skies



• Ramp up revenue performance• Improve spending quality (more

good economics, less politics in budget allocation)

• Expand & diversify exports (products and destinations)

Restore domestic investor confidence!

• Ramp up revenue performance• Improve spending quality (more

good economics, less politics in budget allocation)

• Expand & diversify exports (products and destinations)

Restore domestic investor confidence!



• PGMA must convince us that real change is at hand– Quality appointments (tap real talents)– Right policy decisions (greatest good

for greatest number)– Shed partisanship & vindictiveness

• True & sincere reconciliation, with justice• Political will (is much more than E-VAT)PGMA can still redeem herself… but does

she know how? (Or does she care?)

• PGMA must convince us that real change is at hand– Quality appointments (tap real talents)– Right policy decisions (greatest good

for greatest number)– Shed partisanship & vindictiveness

• True & sincere reconciliation, with justice• Political will (is much more than E-VAT)PGMA can still redeem herself… but does

she know how? (Or does she care?)

Overarching Imperative:It’s (the) Governance, stupid!


E-mail: E-mail: [email protected]@ateneo.edu

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