Business World, 5 January 2016


I forecast that 2016 would be similar to 2015.

Except for election spending, there will be no new sources of growth, as the world economy remains gloomy. Sadly, President Benigno S. C. Aquino III’s promise of a 7.5% to 8.5% GDP growth in his final year is simply unattainable.

With GDP growth of 5.6% in 2015 and 6.0% in 2016, the Aquino administration would have grown by an average of 5.8%, 1% higher than the average growth of 4.8% in the previous 10 years, 2011 to 2010. But remember that the Philippine economy almost hit recession in 2009 owing to the global Grand Recession.

There are many challenges to a strong, sustained growth in Aquino’s final year. On the external side, there is there is the pressure of slowing world economy. The seriousness of the challenge will depend on how weak or strong the downward adjustment of China and how fast or slow the Fed’s move towards monetary normalization.

A harder than expected China fall and a faster than expected rise in US interest rates would be more harmful to the global economy — and indirectly on the Philippine economy.

The collapse of world oil prices has caused fiscal and economic problems in oil-exporting countries.

With falling revenues, these economies have to cut public spending, especially on public infrastructure. Saudi Arabia, squeezed by low oil prices post record $98-billion budget deficit for 2015. It is hard to imagine that these budget cuts won’t have an impact on Filipino overseas employment.

The ongoing geopolitical war is taking its toll on employment opportunities for Filipinos abroad. There are less overseas Filipino workers (OFWs) now not because the local jobs market is improving, as claimed by administration officials, but more because working in war-torn territories has become unbearable for many overseas Filipinos. With this trend, the rise in OFW remittances has begun to decelerate, which will definitely negatively affect overall household final consumption spending.

On the domestic front, agricultural output will continue to be sluggish as the El Niño lingers on until the second quarter of the year.

Manufacturing which has been a major source of growth in recent years has started to lose steam.

From a peak of 10.3% growth in 2013, it expanded by only half, by 5.4%, in 2015. Manufacturing will continue to struggle as the world economy starts to stall. Exports declined sharply in 2015, and its recovery remains uncertain in 2016 as economies of China, most of Europe, and a large part of oil-producing countries continue to slow down.

Growth in construction may appear sustainable, though slowing. From a peak of 14.4% growth in 2012, growth has progressively declined to 8.9% growth in 2015.

Public construction accounts for only about one-third of total construction. Private construction has to be sustained in a big way if one wishes the sector to make a significant contribution to growth. This means public-private partnership has to be pushed more vigorously in the next decade.

From a public policy standpoint, it would be a mistake to assume that the higher budget authorization for public infrastructure as provided for in the 2016 budget would automatically translate into higher spending for capital projects. There are various reasons for this cautious note.

First, there is an election ban on new construction 90 days before the May 9 national and local elections. Second, it is hard to imagine that the inept public officials and bureaucrats will suddenly become a paragon of efficiency overnight. Third, with the likely change in political leadership after the 2016 elections, bureaucrats would be extra cautious in acting on their assigned tasks for fear of missteps in the performance of their respective responsibilities.

Finally, there is built-in delay for new construction as the new set of leaders assumes office. It is reasonable to expect that the incoming President will spend at least two (perhaps four) quarters reviewing and assessing the programs and projects initiated by his predecessor.

The contribution of public administration, defense and social security to economic growth has traditionally been feeble. It was slightly negative in 2015.

The Philippine economy continues to be consumption led. For an economy that is striving to become a medium-income country in the near term, capital formation has been weak and erratic. From a peak of 31.6% in 2010, capital formation turned negative in 2012 and had three years (2011. 2014 and 2015) of unremarkable expansion during the period under review.

Remember a country that does not invest for the future is doomed to low-growth trajectory in the long term.

Net external trade cannot be seen as having a positive contribution to growth in the near term. The strong net external trade in 2010 was followed three years (2011, 2013, and 2015) of negative external trade.

In sum, from 2011 to 2016, the Aquino administration would likely register an average GDP growth rate of 5.8%. That’s neither spectacular nor shabby. But this middle-of-the-road performance has barely made a dent on high poverty incidence in the country, which is direct proof that growth under the present administration was not inclusive.

I said this before and I will say it again: it would be a monumental mistake, bordering on intellectual dishonesty, for President Aquino and his economic managers to claim credit for the 7.6% GDP growth rate in 2010, the highest in recent Philippine history. Since public policy works with a lag, 2010 should rightfully be attributed to Gloria Macapagal-Arroyo.