The Pearl of the Orient loses a little more luster

NOT all the business and economic news of this unusually eventful week has been bad, and as more than one observer has pointed out, there is an interesting irony in the fact that the Philippines’ being “only” the third-fastest growing economy in Asia somehow leaves a bad taste in everyone’s mouth.

But that is exactly what is happening. Where there was some optimism at the beginning of the week, there is little at the end of it; anyone who was holding on to the notion that the Philippine economy is still a “success story”

not yet a crisis, but the deceleration of the economy has happened quickly enough to suggest that the Duterte administration’s economic team will have to act against their nature – that is, move quickly and on a large scale – to put things back on track.

First, inflation defied all expectations that it would be at least a bit lower in October than September’s nine- year high of 6.7 percent. While Malacañang tried to spin it as “good news”

- tually higher than in September, nobody else seemed to think so, particularly in light of signs that

to increase over the next couple of months.

Oil prices are likely to go up due to a combination of tensions within OPEC, the effects of newly

the US, and the onset of the coldest months of the year. Meralco has already announced that its rates will increase in November. And a combination of high holiday season demand, supply pressures from damage to agriculture in the recent typhoons, and the NFA’s failure to secure a 230,000 metric ton rice import deal from the usual suppliers Thailand and Vietnam are going to increase in-

So far, there is little on the policy side to counter these pressures. The BSP said in no uncertain terms a couple of months ago that it had already gone about as far as

monetary policy. Most analysts suggest that another interest rate hike before the end of the year is in order, but there is no reason to believe that will work; the central bank has been steadily raising rates since May with no discern-

may do more harm than good if it raises rates again.

On the side of the administration, actions to loosen agricultural imports and stabilize prices have had some modestly positive effect, but not enough to move

rate. The government

is putting

Bill now pending in Congress, but it is likely overselling it; it will

shipments of presumably cheaper rice to have an impact on the local market, and an increase in oil prices could negate much of the P2 to P7 per kilo price reduction expected under the new import scheme.

Second, third- quarter GDP growth came in at a “disappointing” 6.1 percent, following the revised 6.2-percent growth rate in the second quarter. That is still a respectable rate of economic expansion, but much slower than it has been in the past three years. Even more worrisome, there are signs that the growth rate is being curbed by the consistently high

consumption grew at a much slower pace in the third quarter, particularly spending on food.

Food spending is a canary in the coal mine in the context of the broader economy, because food is a necessity. The neutral point for consuming spending on food – in other words, a state in which consumers maintain the same level of demand between a given quarter and its year-earlier comparative quarter – is a rate of growth a bit

given quarter. The third quarter’s inflation rate was 6.2 percent, according to the BSP; growth in food spending, however, dropped

- ter, food spending grew by 6.2

of 4.7 percent. Thus in the turn of one quarter the economy went from a state in which consumer spending was expanding to one in which consumer spending is contracting in real terms.

That could just as easily reverse itself again in the next quarter,

- tinuing and perhaps even intensifying, it will take something more drastic than policy moves that nip around the edges of the price problem on a time scale measured in months to make it happen. Right now, there do not seem to be any options that would not have other negative consequences. For example, a radical pump-priming move such as suspending the fuel tax would negatively impact government spending, and reduce any advantage gained from encouraging greater consumer spending.

Little wonder then that economic observers are virtually unanimous in the view that the country’s economic growth will continue to decelerate and miss all the government’s planning targets. The Philippines is still enjoying robust economic growth even if it is not living up to everyone’s lofty expectations, and it can be reasonably said that things could be a lot worse. But given the

trend, they will be if the govern-