Weslene Uy, Economic Fellow of the Stratbase ADR Institute
The campaign season officially kicked off last week, marking the start of a three-month period that will no doubt be filled with theatrics and mudslinging. After all, the outcome of the midterm election is, in some ways, a litmus test for the popular support for this administration. Other than re-electionists, at least three hopefuls closely associated with President Duterte are vying for a seat in the senate. And in the latest Pulse Asia Senatorial Preferences survey, the former Special Assistant to the President finally broke into the coveted twelve spots, overtaking even more seasoned politicians.
While election outcomes are still heavily determined by personalities, for the more discerning voters, candidates’ platforms and stand on certain issues will be a crucial selling point. Of course, economic issues will — and should — be among the top agenda items, especially after a tumultuous year for our economic managers.
During the fourth quarter of 2018, the country’s gross domestic product grew only by 6.1%. This was a disappointing finish to the year, amidst expectations that growth will pick up at an even faster pace. For 2018, growth averaged at 6.2% — its weakest expansion in three years. Multilateral institutions predicted growth to reach at least 6.4%, already a downward revision by 0.4 percentage points. Economic managers also expected a growth of at least 6.5%, lower than their initial target of at least 7% for 2018. Yet even with these revised forecasts, targets were still missed.
Among sectors, industry expanded the highest during the final quarter of 2018 at 6.9%, followed by services at 6.3%, and agriculture at 1.7%. The industry sector was supported by the rapid expansion of construction at 21.3%, its fastest pace since 2013, affirming the administration’s infrastructure drive. Manufacturing, however, only grew by 3.2%, its weakest performance since 2011, which Socioeconomic Secretary Ernesto Pernia attributed to weak business confidence, policy uncertainties, and slower demand from key markets abroad. For the year, industry still grew the fastest at 6.8%; services expanded by 6.6% while agriculture grew by only 0.8%, continuing its streak of substandard performance.
On the demand side, government spending was an important growth driver. During the last quarter of 2018, public expenditure increased by 11.9%, bringing the 2018 average to 12.8%. For 2019, however, the delay in the passage of the 2019 budget, as well as the election spending ban, may clip its growth.
On the first week of February, lawmakers finally approved the 2019 budget, thwarting any proposals to operate on a reenacted budget for the year. Yet some damage has already been done — at least for the first quarter. To avoid putting infrastructure projects on a standstill, economic managers are also seeking an exemption for big-ticket infrastructure projects from the election ban.
Capital formation expanded by double-digits throughout the year, except for the 5.5% expansion during the fourth quarter. This was supported by the continued rapid increase in investments in durable equipment. However, the central bank’s tightening of its monetary policy to manage inflation also stifled investment appetite.
Merchandise exports were also a drag, contracting by 1.8% in 2018. December, in particular, was a grim month for exports, recording a negative growth rate of 12.3%. Exports of electronic products, which account for around half of the export base, declined by 15.2%. Imports, on the other hand, continued its double-digit expansion at 13.4% for the year. Yet in December imports also entered negative territory, with slower receipts of capital goods and raw materials. The trade gap now stands at USD 41.4 billion, the widest on record.
Household spending, which is traditionally the country’s main growth driver, took a hit from higher commodity prices, expanding by 5.4% during the 4th quarter, and 5.6% for the year. Consumer expectations, which reached its lowest level in years, only confirmed how inflation has adversely impacted consumers.
Fortunately, commodity prices are expected to ease in 2019. In line with expectations, inflation continued to decelerate on a month-on-month basis, opening the year at 4.4%, a ten-month low. This was attributed to slower price increases of alcoholic beverages and tobacco, clothing and footwear, housing, water, electricity, gas and other fuels, health, and transport. However, the inflation rate may not have factored in the full impact of the second round of increase of fuel excise tax.
Meanwhile, foreign direct investment (FDI) recorded net inflows of USD 9.1 billion from January to November 2018, a decline of 3.2% year-on-year, due to lower inflows of equity capital. This in turn, reflects a more somber investment sentiment, on both external and domestic fronts. To reach its full-year target, FDI inflows must amount to USD 1.3 billion in December.
While still one of the fastest growing economies among emerging markets, The Philippines’ economic number for the past year had not been up to par with expectations. Undeterred by the latest figures, economic managers expect GDP growth to reach 7% in 2019. Yet some analysts are not as optimistic, with some projecting growth to fall below 6%. What is clear, however, is that more work needs to be done for the country to realize its full economic potential.
As we get bombarded by campaign rhetoric and promises, daily interviews and debates, let’s exercise our power as citizens to choose candidates who are well qualified, experienced, and proven competence. The top national concerns consistent in years of national survey is still economic. Let’s make sure that our ballot will have names who can become champions of much needed economic reforms.
This article was originally published in BusinessWorld.