ATENEO CENTER FOR

ECONOMIC

RESEARCH AND

DEVELOPMENT

Philippine Economic Performance &

Outlook

Eagle Watch Economic BriefingAteneo Rockwell, Makati City

25 January 2018

Cielito F. HabitoProfessor of EconomicsAteneo de Manila University

Storyline1. The economic momentum continues.

2. Investment, trade and manufacturing sustain a 7-year surge.

3. There’s less trabaho, but more negosyo.

4. Government spending (esp infra) is crucial.

5. MSMEs are key to our inclusive growth.

6. There are risks & challenges we must address.

7. PH is poised to grow faster and stronger.

1. The economic momentum continues.Dynamism and stability remain, unlike in past post-election years.

PiTiK Test in 7

Presyo: Inflation well within target (2017: 3.2%)

Trabaho: Less trabaho, more negosyo (Oct 7 Unemp Rate: 5.0%)

Kita: 2017 GDP growth of 6.7% (Among Asia s fastest)

Presyo, 2017

Inflation Trends

9.3%

3.2%3.8%

4.4%

3.2%2.9%

4.2%

Malaysia – 3.8% Indonesia – 3.8%

Vietnam – 3.5%

1.4% 1.8%

3.2%

Jobs Decline TapersBut Quality Improving

Trabaho, 2017

Kita, 2017

PH: Among the fastest GDP Growth Rates in Asia

Graphic: NEDA

Kita, 2017

Industry: Strong DriverAgriculture Reverses Last Year s Decline

Graphic: NEDA

Graphic: NEDA

Kita, 2017

Demand Side: Internal & External Boost

The Growth Momentum is Sustained

Graphic: NEDA

2. Investment, trade & manufacturing sustain a 7-year surge.Growth shift began in 2010.

1.8

-1.8

6.2

12.0

15.8

10.5

-5.0 0.0 5.0 10.0 15.0 20.0

2010-2017

2004-2009

Source: PSA

Investment Spending: A 7-Year Roll

Private Construction

Durable Equipment

Fixed Investment

Growth Rate (%)

PH exports to ASEAN zoomed with AFTA.

0 100 200 300

Mineralfuels,oils,distillation

Essentialoils,perfumes,

Cereal,flour,starch,milk

Miscellaneouschemicalproducts

Ediblefruit,nuts,peelofcitrus

Vegetable,fruit,nutetc.food

Miscellaneousedible

Tanning,dyeingextracts,

US$Millions

PHExportstoMalaysia,2003vs.2013

2013level

2003level

0 50 100 150

Machinery,nuclearreactors,boilers,etc.

Optical,photo,technical,medical,

etc.apparatus

Mineralfuels,oils,distillationproducts,etc.

Animal,vegetablefatsandoils,cleavageproducts,etc.

Furniture,lighting,signs,

prefabricatedbuildings

Soaps,lubricants,waxes,candles,modellingpastes

US$Millions

PHExportstoIndonesia,2003vs.2013

2013level

2003level

0 2 4 6 8 10

Organicchemicals

Ediblefruit,nuts,peelofcitrusfruit,melons

Cereal,flour,starch,milkpreparationsandproducts

Articlesofironandsteel

Soaps,lubricants,waxes,candles,modellingpastes

Vegetable,fruit,nut,etc.foodpreparations

Ores,slagandash

US$Millions

PHExportstoVietNam,2003vs.2013

2013level

2003level

THAILAND MALAYSIA

VIETNAMINDONESIA

Trade has resumed growthExport growth nearly doubled (and

goods exports are back on top)Goods exports now growing faster again

Manufacturing ResurgenceGrowing faster than overall economy

Manufacturing, 2017:

Winners• Fab. Metal Prods. (50.3%)

• Basic Metal Prods (23.5%)

• Non-met Minerals (21.6%)

• Furniture & Fixtures (20.4%)

• Office Equipment (16.5%)

• Petroleum/Fuel (12.5%)

• Transport Equipt (12.4%)

• Radio/TV/Comm Eqpt (12.1%)

• Footwear/Leather• Chemical Products

• Misc Manufactures

Losers• Textiles (-19.7%)• Tobacco Mfg• Wearing Apparel

• Electrical Machinery • Wood Etc Prods• Food Manufactures• Paper/Paper Prods• Publishing/Printing

• Non-elec Machinery• Rubber & Plastic Prods• Beverages

.

. There s less trabaho, but more negosyo.

Job quality is improving.

Job Quantity Lower, But Job Quality Better

• Total no. of jobs dropped by 134,000 (but reduction is tapering off)

• 1M Filipinos enter working age (15 years) every year

• Even so, unemployment rate fell from July to Oct due to lower LFPR (most still in school due to K+12)

• Wage & salary workers continue to rise (due to manufacturing surge); underemployment now < 16%

• Entrepreneurs (self-employed who employ others in a business) have risen

Unemployment rate falls, even as jobs decline (but tapering)

Underemployment on downtrend?Hundreds of

thousands of new jobs generated in

industryUnderemployment continues decline

Wage Employment, Entrepreneurship are expanding

4. Government spending (especially in infra) is crucial.Growth driver in 2017, especially Q4

Government spending was a key growth driver in Q4…

…and will be the prominent growth driver in the years ahead

• Direct employment and multiplier effect

• Attraction for long-term private investment

5. MSMEs are key to our inclusive growth.Major economic agenda in our ASEAN Chairmanship.

MSMEs Contribution to GDP (%)

MSMEs Employment Contribution (%)

MSME Development:Starved of Financing

PH SME bank financing is pathetically low, compared to

our neighbors

7 M s of MSME Development1. Mindset – government, banks, and

entrepreneurs themselves

2. Mastery – business & financial management

3. Mentoring – DTI Roving Academy, DBFTA; NGOs

4. Money – financial inclusion (LBP, DBP refocus)

5. Machines – SETUP, SSFs, financing programs

6. Markets – infra, clustering, e-commerce, TF

7. Models – inclusive value chains vs. vertical integration

ASEAN More MSME-friendly regional environment

PH AEC 2025 GameplanInternationalizing MSMEs

6. There are risks and challenges we must address.Both external and internal issues

Medium Term Downside Risks

• Implementation shortcomings (BBB)

• Political distractions and weakened institutions

• Slowing remittances and BPO sector growth

• Inflationary pressures from self-fulfilling (exaggerated) expectations

• Loss of momentum in completing the tax reform program

• Trade slowdown due to TPP exclusion

1996 2006 2016

Metro Manila

Metro Manila + Central Luzon + CALABARZON

Luzon

Persistent Challenge:We re even more Manila- & Luzon-centric now

SHARE OF GDP

Persistent Challenges• Falling farther behind in exports, and still

lagging in FDI

• Weakness in agriculture & agribusiness

• Fiscal pressures from hiked public investments, downscaled PPP, and populist policies (free tuition, irrigation)

• Non-passage of Basic Bangsamoro Law and lack of lasting peace in Mindanao

• Inferior telecommunications quality and Internet speed

External Risks (IMF)

Graphic: IMF

7. PH is poised to grow faster and stronger.But we must do the homework right

IMF World Economic Outlook Global economy is expected to pick up in

2018-2019 (3.9% GDP growth)

Graphic: IMF

PH will do better!

Short Term Outlook (2018)

Inflation Rate: 3.0-4.0%

Jobs: Employment Rate of 94-95% (Unemployment Rate 5-6%)

GDP Growth: 6.5-7.5%, with downside risks

Exchange Rate: P50-52/$1

The Way Forward

For sustained growth:

Build, build, build implementation

Ease trade and investment restrictions; negotiate more trade deals

Regulatory reform

For inclusive development:

Concerted MSME promotion and support

Inclusive value chains (vs. vertical integration)

Strong competition policy enforcement

Investments in human development & social protection

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cfhabito@ateneo.edu