Cielito F. Habito, Ph.D. Ateneo Center for Economic Research & Development

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Aileen Alice Gaines
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1 Cielito F. Habito, Ph.D. Research & Development

2 Overview 1 st 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 broadbased growth

3 Second Quarter 07 Highlights: Strengths 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

4 Second Quarter 07 Highlights: Challenges Tax revenue performance falters (now recovering?) Foreign investment applications/ approvals down Export growth tapering Imports falling Employment quality worsening

5 Presyo: Inflation is at historical lows

6 although still higher than most of our neighbors in Q2 07

7 Kita: RP s 7.5% GDP growth now among the fastest in the region

8 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%)

9 What Pushed Q2 Growth? Metro Manila Spending side: Government Construction (39.6%) Government Consumption (13.5%)

10 Production Performance: Government Spending is main driver

11 Good News: Debt Service Taking a Declining Share of Revenues (Projected)

12 Government Finances: Tax & Revenue Effort Dropped Anew

13 Last Year s Contradiction: Foreign Investments surged

14 yet total investments had been falling Implication: Domestic investment has fallen very sharply

15 FDI Picture Now Reversing?

16 A Glaring Problem: RP Investment Lags Far Behind Neighbors

17 ASEAN Investment Growth (Annual Growth Rates, %)

18 Foreign Trade Slowing trend in 2007

19 Is The Economy s Growth Being Felt Below?

20 Self Rated Poverty: Rises above 50% again

21 and hunger hits a new record

22 Employment Improving Picture?

23 But Where Are The New Jobs?

24 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 years 61% reached high school or less

25 Where did the growth come from? Gross Regional Domestic Product Growth Metro Manila Metro Manila Cagayan Valley Northern Mindanao

26 Where did the growth come from? Metro Manila and Surrounding Provinces Metro Manila 55.7% 61.2%

27 Growth for whom? Agriculture: 36.7% of workers, but only 8.2% of the growth in Q4 06 Manufacturing & Trading: 45% of GDP Metro growth, Manila 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.

28 Will the first semester growth performance be sustained? Or is it too good to be true? Too good to last?

29 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

30 Too good to last? Global economic outlook: moderating growth, persistent threats Domestic influences: downsides outweigh upsides?

31 World Economic Outlook Updates: Revised Upward, But Still Slower Than 06 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

32 The World Economy: Moderating Growth (IMF) 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

change Loss of freshwater services Tropical storms Inland flooding Geopolitical Risks International

33 The World Economy: Intensifying Risks 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 Tropical storms Inland flooding Geopolitical Risks International terrorism Weapons of mass destruction Wars Failed States Retrenchment from globalization Middle East stability

34 Domestic Drivers 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)

35 Domestic Drags Falling imports Slowing exports Anemic investment slower production Weaker tax revenues slower government spending? Oil price hike new round of inflationary pressure

36 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 fastgrowing giant economies

Ateneo Macroeconomic Forecasting Model (AMFM) 2007-2008 Projections, Revised &

37 Ateneo Macroeconomic Forecasting Model (AMFM) Projections, Revised & Upgraded: Projected GDP Growth % Inflation % Unemployment %

38 Quarterly Growth: Q1: 7.1% Q2: 7.5% Q3: % Q4: % 2007: %

39 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

agri-processing Seize tourism opportunities: surging

40 Economic Imperatives 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)

for allocation) Expand & diversify exports (products

41 Economic Imperatives 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!

Outlook: Medium Term With right policy directions: Services prominence to continue BPO, Real estate, Communication, Transport, Tourism Agriculture &

42 Outlook: Medium Term With right policy directions: 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)

43 Two Roads Before Us 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

44 Two Roads Before Us 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, jobcreating growth Take-off on a new growth plane Are our leaders up to the challenge?

SOUTH ASIA. Chapter 2. Recent developments

SOUTH ASIA. Chapter 2. Recent developments SOUTH ASIA GLOBAL ECONOMIC PROSPECTS January 2014 Chapter 2 s GDP growth rose to an estimated 4.6 percent in 2013 from 4.2 percent in 2012, but was well below its average in the past decade, reflecting