A Mid-Year Economic Assessment

Cielito F. Habito
Ateneo Center for Economic Research &
Development
Ateneo Center for Economic Research and Development
 2008 Highlights
Good News

+Private domestic investment

has rebounded; offsets drop in
public construction and FDI
+Government surpluses in
recent months keep
cumulative deficit in check
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 2008 Highlights:
Bad News
―Prices: Inflation hits double-digits
―Jobs: Massive job losses
―Incomes/Output: Slowdown or
reversal across the board
 Personal Consumption: Dramatic
slowdown
 Net FDI inflows: Steep decline
 Government Spending: Now a drag
 Exports & Imports: Stunning
reversals
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 Production
Performance:
First Quarter Slowdown
2006 2007 2008
Indicator
FY Q1f Q2f Q3f Q4f FYf Q1

GNP Growth (%) 6.1 7.3 9.8 9.1 6.0 8.0 7.3
Net Factor Inc fr Abr 13.3 11.3 25.3 31.9 0.6 16.5 30.3
GDP Growth (%) 5.4 7.0 8.3 7.1 6.4 7.2 5.2
Agri, Fish & Forestry 3.8 4.0 4.2 5.7 5.7 4.9 3.0
Industry 4.5 6.6 10.3 6.6 4.9 7.1 3.9
Services 6.7 8.4 8.4 8.0 7.8 8.1 6.9

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Exceptional Gainers
Improved on Last Year’s
Growth:
Water Transport
5.0%  25.9%
Air Transport
8.3%  13.3%
Electricity
4.2%  10.9%

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What pushed 2007 growth
beyond 7%?
• Production (S) side:
Mining (26%)
Construction (23%)
Real Estate (18%)
Finance (13%)
Communication (10%)
• Spending (D) side:
Government Consumption (10%)
Public Construction (30.8%)
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Stunning Reversals:
Last Year’s Main Booster,
Government Spending, Fizzles
OutIndicator 2006 2007 2008
FY Q1f Q2f Q3f Q4f FYf Q1

Personal Consn Exp 5.5 5.9 5.6 5.7 6.2 5.8 5.1

Govt Consumption 6.1 9.5 11.9 6.4 4.6 8.3 -1.0

Capital Formation 2.7 8.7 17.6 7.6 11.0 11.2 7.3

Of which:
Construction 5.5 20.4 34.4 16.8 11.7 21.3 6.1
Public 24.7 18.9 59.4 11.5 15.4 29.6 -9.5
Private -3.7 21.3 13.7 19.5 9.2 15.9 15.1
Durable Eqpt -1.8 4.3 8.8 2.3 2.6 4.5 8.2
Br Stck & Orch Dev -0.4 2.0 7.1 3.6 5.1 4.5 -1.5

Exports 11.2 10.8 4.9 3.7 3.9 5.6 -11.1

Imports 1.9 -1.8 -10.5 -5.0 0.2 -4.5 -6.6

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ASEAN Investment Growth
Ave. Annual Growth Rates, 2002-
2006 (%) 19.7
20.0
18.1

18.0

16.0

14.0

11.1
12.0

10.0

7.5
8.0

6.0 4.7
4.2
3.1
4.0

2.0
0.0 0.2

0.0

- 2.0
RP LAO SIN MAL INDO THA VIET CAM MYA

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How Does It All Feel
From Below?

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 Fact:
Poverty incidence worsened
from 2003 to 2006.
Family Income & Expenditures
Survey:
• Proportion of poor rose from 30% to
33%
• Number of poor Filipinos increased by
nearly 4 million
• Poor families rose from 24.4% to
26.9%
• Number
Ateneoof poor
Center families
for Economic Research increased
and Development by
Self Rated Poverty:
Rising anew
 Profile of the Jobless

• 2.9 million are unemployed

• 6.6 million are underemployed;
mostly in agriculture
• Of the unemployed:
50% are within ages 15-24
years;
80% are within 15-34 years
59% reached only elementary
or high school
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What’s in store
for the rest of
2008?
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 Storm Winds
The US Slowdown/Recession:
The Plot Thickens
―“Slow motion recession”
―Major automakers suffer 18%
(GM), 21% (Toyota) & 28% (Ford)
sales slump
―New unemployment claims top
380,000, a level associated with
recession
―Widespread store closures and job
cuts announced
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 Low Fuel
Tax & Revenue Effort
25.0
Faltering
Revenues/GDP
20.0

15.0

Taxes/GDP
10.0

5.0

0.0
75

77

79

81

83

85

87

89

91

93

95

97

99

01

03

05

07
19
19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

20
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 Excess Baggage
• Governance Weaknesses
―Tax Evasion
―Smuggling
―Massive Graft & Corruption
―Regulatory Capture
• Political Uncertainty
―Weakened Institutions
―Leadership instability
(Cabinet reshuffles; weak
Presidency)
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Oil Price
Outlook:
Opposing Views
Optimistic View:
• Overbuying) by market players due to $
weakness, panic
• Global economic slowdown will weaken
demand, pull prices back down
Pessimistic View:
• Rising supplies unable to match surging
demands, especially from China & India)
• Higher prices are here to stay
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Food Prices Outlook
(UN-FAO)
• Prices expected to ease
worldwide with coming harvest;
however…
• Prices not likely to return to
former low levels due to:
Escalating input costs (oil-related)
Increased utilization by producers,
diminished exportable surpluses
Rising demands by fast-growing
food-importing countries
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Domestic Drivers
Sustained overseas remittances
 fuels consumption spending
Agriculture supply response to
higher prices
Rebounding private domestic
investments (substantial PS
invest-ment intentions
programmed for the year)
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Domestic Drags
Rapid price increases
 slower consumption spending
Weaker tax revenues
 slower government spending
Rising interest rates
Dampened investment, consumption
Record high oil prices
 higher production, transport costs
 shifts in consumption patterns
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 Sectoral Drivers &
Imperatives
Agriculture: stronger LGU roles;
supply chain management
Tourism: proper policy environment
(more open skies needed)
Construction: durable govt
revenues
Mining: social & environmental
responsibility, confidence building
Real Estate, BPOs: vulnerable to
US & global slowdown
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Overall Imperatives
• “Moderate the greed” (on both
revenue and expenditure sides)
• Deliberately pursue broad-based,
inclusive growth (agriculture,
tourism, SMEs)
• Convincing governance
reforms
Restore public trust in government
Restore investor confidence
Restore our faith in our future!
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