2018’s eco­nomic driv­ers and spoil­ers

Philippine Daily Inquirer - - OPINION - Dindo Man­hit is pres­i­dent of Strat­base ADR In­sti­tute. DINDO MAN­HIT

Eco­nomic mo­men­tum slowed down in the third quar­ter of 2018, with the un­der­per­for­mance of agri­cul­ture and the un­prece­dented in­crease in in­fla­tion, along with weaker ex­ports and de­clin­ing com­pet­i­tive­ness, be­com­ing growth spoil­ers.

The third-quar­ter growth rate at 6.1 per­cent was the slow­est since 2015. This brought the av­er­age growth rate to 6.3 per­cent. To reach the gov­ern­ment’s low-end tar­get of 6.5 per­cent for 2018, the eco­nomic man­agers were hop­ing the econ­omy would grow by 7 per­cent in the last quar­ter.

After a strong per­for­mance in 2017, ex­ports con­tracted by 1.2 per­cent from Jan­uary to Oc­to­ber 2018. Elec­tronic prod­ucts, the coun­try’s main ex­ports, con­tin­ued to grow, but failed to off­set the con­trac­tions in al­most all other top com­modi­ties, such as other man­u­fac­tured goods, ma­chin­ery and trans­port equip­ment, ig­ni­tion wiring sets, min­eral prod­ucts and co­conut oil. Ba­nana ex­ports, how­ever, in­creased by 17.5 per­cent for the first 10 months of 2018, with in­creased re­ceipts from China.

Ex­porters at­trib­uted the con­trac­tion to both in­ter­nal and ex­ter­nal fac­tors, such as the higher costs of raw ma­te­ri­als and pro­duc­tion re­sult­ing from in­creased salaries, the US-China trade war, volatile global oil prices and the gov­ern­ment’s tax re­form pro­gram. Im­ports, on the other hand, ex­panded by 16.8 per­cent for the first 10 months of 2018, with the in­creased in­flow of cap­i­tal goods and raw ma­te­ri­als and in­ter­me­di­ate goods.

For­eign di­rect in­vest­ments have so far been the big­gest con­trib­u­tor to growth, grow­ing by more than 24 per­cent in the first three quar­ters of 2018—higher than the 6.9-per­cent growth rate for the same pe­riod in 2017.

While the gov­ern­ment re­mains op­ti­mistic that the coun­try will reach at least 6.7 per­cent in 2019 be­cause of the midterm elec­tions in May, an in­ter­na­tional credit rat­ing agency and some mul­ti­lat­eral lend­ing in­sti­tu­tions have down­graded their Philip­pine growth fore­casts for 2018 and 2019. The World Bank trimmed its growth pro­jec­tions to 6.4 per­cent from 6.5 per­cent in 2018, and to 6.5 per­cent from 6.7 per­cent for 2019. Fitch So­lu­tions, on the other hand, low­ered its fore­cast for gross do­mes­tic prod­uct growth to 6.2 per­cent in 2018, and to 6.1 per­cent for 2019, from the pre­vi­ous 6.3 per­cent. The Asian De­vel­op­ment Bank also re­vised its ini­tial ex­pec­ta­tions from 6.8 per­cent to 6.4 per­cent in 2018, and from 6.9 per­cent to 6.7 per­cent for 2019.

The eco­nomic man­agers’ op­ti­mism is an­chored on the leg­isla­tive re­forms they have been push­ing, and the pos­i­tive de­vel­op­ments in the global oil mar­ket. The pas­sage of the Rice Tar­if­fi­ca­tion Bill and the Ease of Do­ing Busi­ness Act, and the ap­proval of the 11th For­eign In­vest­ment Neg­a­tive List, are cru­cial re­forms that can bring back the econ­omy on track. The Rice Tar­if­fi­ca­tion mea­sure is aimed at re­duc­ing rice prices by up to P7 per kilo. Mean­while, the Ease of Do­ing Busi­ness Act and the 11th For­eign In­vest­ment Neg­a­tive List are ex­pected to im­prove in­vestor con­fi­dence and the busi­ness en­vi­ron­ment.

The eco­nomic slow­down in 2018 was a wake-up call for the Duterte ad­min­is­tra­tion. The sit­u­a­tion has sta­bi­lized some­what, but it re­mains a chal­lenge to the coun­try’s eco­nomic man­agers, busi­ness sec­tor and pol­i­cy­mak­ers that the econ­omy re­quires con­stant boosts in pro­duc­tiv­ity. More­over, there is a need to ur­gently ad­dress struc­tural weak­nesses that have ham­pered sus­tained growth, among them low agri­cul­tural pro­duc­tiv­ity, weak ex­port growth and an un­di­ver­si­fied ex­port base.

The World Bank has rec­om­mended that the Philip­pines fo­cus on three ar­eas of re­forms: im­prov­ing mar­ket com­pe­ti­tion through reg­u­la­tory re­forms, sim­pli­fy­ing reg­u­la­tions for trade and in­vest­ments, and re­duc­ing la­bor mar­ket rigidi­ties and costs.

The pos­i­tive po­si­tion­ing for an eco­nom­i­cally pro­duc­tive year lies in be­tween reg­u­la­tion and non reg­u­la­tion, in be­tween state and mar­ket col­lab­o­ra­tion. The ex­pan­sion of mar­ket forces can be fa­cil­i­tated di­rectly by gov­ern­ment poli­cies, which open in­sti­tu­tional and ter­ri­to­rial lev­els of en­gage­ment where ac­tion-ori­ented re­sponses to eco­nomic gov­er­nance can be re­al­ized. How­ever, only with a con­sis­tent pol­icy en­vi­ron­ment will big in­vest­ments for jobcre­at­ing en­ter­prises thrive.


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