cielito f. habito, ph.d. - philippine economic society · ateneo center for economic research and...
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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
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• 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
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• 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
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Kita: RP’s 7.5% GDP growth now among
the fastest in the region
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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%)
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What Pushed Q2 Growth?
Metro
Manila
Spending side:
Government Construction (39.6%)
Government Consumption (13.5%)
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Production Performance: Government Spending is main driver
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Good News: Debt Service Taking
a Declining Share of Revenues
2006 2007 2008 (Projected)
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Government Finances:
Tax & Revenue Effort Dropped Anew
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Last Year’s Contradiction:
Foreign Investments surged…
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…yet total investments had been falling
Implication: Domestic investment has fallen very sharply
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FDI Picture Now Reversing?
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A Glaring Problem:
RP Investment Lags Far Behind
Neighbors
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ASEAN Investment Growth (Annual Growth Rates, %)
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Foreign Trade Slowing trend in 2007
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Is The Economy’s Growth Being Felt Below?
Self Rated Poverty:
Rises above 50% again
…and hunger hits a new record
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Employment
Improving Picture?
But Where Are The New Jobs?
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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
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Where did the growth come from? Gross Regional Domestic Product Growth
Metro
Manila
Cagayan
Valley
Metro
Manila Northern
Mindanao
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Where did the growth come from? Metro Manila and Surrounding Provinces
Metro
Manila
55.7% 61.2%
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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.
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Will the first semester
growth performance be sustained?
Or is it
too good to be true? Too good to last?
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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
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Too good to last?
• Global economic outlook: moderating growth, persistent threats
• Domestic influences: downsides outweigh upsides?
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•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
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•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 $100/barrel
The World Economy:
Moderating Growth (IMF)
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Economic Risks
• Falling US Dollar
• Chinese “hard landing”
• Oil price shocks
• Fiscal crises due to aging populations
• “Blow up” in asset prices
• Environmental Risks
• Climate change
• Loss of freshwater services
The World Economy:
Intensifying Risks
• Tropical storms
• Inland flooding
• Geopolitical Risks
• International terrorism
• Weapons of mass destruction
• Wars
• Failed States
• Retrenchment from globalization
• Middle East stability
•
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Low inflation
Surging overseas remittances
higher consumption spending
Government infra spending (but is it sustainable?)
New investment intentions by large companies (but mostly real estate)
Domestic Drivers
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Falling imports
Slowing exports
Anemic investment
slower production
Weaker tax revenues slower government spending?
Oil price hike new round of inflationary pressure
Domestic Drags
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Why Oil Prices Are High
• Supply disruptions (Afghanistan, Yemen) & geopolitical risks
• Worldwide refinery bottlenecks
• Moderate non-OPEC supply growth; OPEC supply controls
• Lower winter temperatures
• Rapid demand growth from fast-
growing giant economies
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Projected GDP Growth - 6.2-7.2%
Inflation - 3.0-4.0%
Unemployment - 7.5-8.0%
Ateneo Macroeconomic
Forecasting Model
(AMFM)
2007-2008 Projections, Revised & Upgraded:
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Quarterly Growth: Q1: 7.1%
Q2: 7.5% Q3: 5.5-7.1%
Q4: 5.0-7.3%
2007: 6.2-7.2%
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Key Assumptions
• Dollar weakening/Peso appreciation to continue (approach P40/$)
• Oil prices in $80-90 range
• World economic growth to moderate further (esp. US)
• Domestic investment: more of the same
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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
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• 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
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• 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:
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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
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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
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