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Cielito
Cielito F.
F. Habito
Habito
Ateneo
Ateneo Center
Center for
for Economic
Economic Research
Research &
& Development
Development
Overview
1
Ten Key Economic Trends
The “Perfect Storm”
2
Ten Key Economic Trends
Silver Linings
8. Private domestic investment has
rebounded (after years of
“investment drought”).
9. Growth in net income inflows
remained respectable.
10.Gross international reserves have
surged since last year.
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2003 3.1
2004 5.5
2005 7.6
2006 6.2
2007 2.8
Aug-08 12.5
Non-NCR 14.2
Food 17.2
Year Ave. 8.8
3
ASEAN Inflation Rates (%)
June 2008
%
%
25.0
25.0
21.4
21.4
20.0
20.0
15.0
15.0
11.4
11.4
8.9
8.9
10.0
10.0
7.5
7.5 7.5
7.5 7.7
7.7
7.1
7.1
5.9
5.9
5.0
5.0
5.0
5.0
0.0
0.0
TW
TWNN KO
KORR C
CHI
HI SIN
SIN TH
THAA M
MAL
AL IN
IND
DOO RP
RP V
VNNM
M
4
3. Incomes/Output slowed
down significantly.
Agriculture now leads growth
2006 2007 2008
Indicator
FY FYf Q1 Q2
5
Services Sector Performance:
Real Estate Exceptionally Strong
2006 2007 2008
Sector
FY FYf Q1 Q2
Sectoral Gainers
Gainers:
Services: Real Estate, Finance (Banks &
Insurance), Water Transport, Wholesale
Agriculture: Sugarcane, Bananas, Corn,
Palay, Coconut, Poultry
Industry: Utilities (Electricity), Food &
Beverages, Tobacco, Footwear, Leather
Prods
Slowdown:
Construction, Communication, Finance,
Land & Air Transport, Private Services
Ateneo Center for Economic Research and Development
6
Sectoral Losers
Negative Growth:
Agriculture: Livestock, Other Crops,
Forestry
Mining: Nickel, Chromium
Services: Education
Manufacturing:
Textiles, Wood & cork prods,
Publishing/ printing, Electrical
machinery, Rubber prods
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9.0
Metro Northern
8 .7 8.6
Manila Mimaropa Mindanao
7 .8
Central 7 .9 Caraga
8.0 7 .7 7.7
7 .2 7.2 Visayas 7 .4
7.0 6 .7 6 .7
6 .6
5 .8 6 .1
6.0
5 .5 5 .4
5.0
4.0
3 .2
3.0
2.0 Eastern
Visayas
1.0
0.0
M
I
R
II
A
B
P
II
I
II
IX
I
II
II
II
X
R
IV
IV
A
C
M
V
X
V
N
R
A
7
Revisiting 2007 GDP Growth:
What pushed it beyond 7%?
• Production (S) side:
Mining (26%)
Construction (23%)
Real Estate (18%)
Finance (13%)
Communication (10%)
• Spending (D) side:
Government Consumption (8.3%)
Public Construction (29.6%)
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4. Government spending is
now a drag.
2006 2007 2008
In d ic a to r
FY FY f Q1 Q2
P e rs o n a l C o n s n E x p 5 .5 5 .8 5 .2 3 .4
G o v t C o n s u m p tio n 6 .1 8 .3 1 .9 - 5 .1
C a p ita l F o rm a tio n 2 .7 1 1 .2 4 .0 1 4 .7
O f w h ic h :
C o n s tru c tio n 5 .5 2 1 .3 - 3 .1 8 .1
P u b lic 2 4 .7 2 9 .6 - 1 2 .9 - 6 .4
P riv a te - 3 .7 1 5 .9 2 .6 2 5 .0
D u ra b le E q p t - 1 .8 4 .5 8 .6 4 .0
B r S tc k & O rc h D e v - 0 .4 4 .5 - 2 .0 - 5 .0
E x p o rts 1 1 .2 5 .6 - 6 .1 7 .7
Im p o rts 1 .9 - 4 .5 - 5 .8 - 1 .0
8
Government Finances, 2008
Goodbye, Balanced Budget
Jan-Jul
July '08 Jun '08
Fiscal Variables '08
(P billion) (P billion) (P billion)
Revenues 101.42 87.56 671.40
Tax 89.27 80.36 601.69
Non-Tax 12.14 7.21 69.71
Expenditures 116.85 86.80 704.84
Surplus (Deficit) (15.43) 0.76 (33.44)
Full YearTarget 0.00 0.00 0.00
Ateneo Center for Economic Research and Development
9
ASEAN Investment Growth
Ave. Annual Growth Rates, 2002-2006 (%)
1 9 .7
2 0 .0
1 8 .1
1 8 .0
1 6 .0
1 4 .0
1 1 .1
1 2 .0
1 0 .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 IN D O THA V IE T CAM M YA
10
7. Exports recover after a
steep Q1 decline.
2 5 .0
2 0 .0
E x p o rtG ro w th
1 5 .0
1 0 .0
5 .0
0 .0
Q 1-06 Q 2 -0 6 Q 3 -0 6 Q 4 -0 6 FY -0 6 Q 1-07 Q 2 -0 7 Q 3-07 Q 4 -0 7 F Y -0 7 Q 1 -0 8 Q 2 -0 8
- 5 .0
Im p o rt G ro w th
-1 0 .0
-1 5 .0
8. Private investment
spending has rebounded.
2006 2007 2008
In d ic a to r
FY FYf Q1 Q2
P e rso n a l C o n sn E x p 5 .5 5 .8 5 .2 3 .4
G o v t C o n su m p tio n 6 .1 8 .3 1 .9 -5 .1
C a p ita l F o rm a tio n 2 .7 1 1 .2 4 .0 1 4 .7
O f w h ic h :
C o n stru c tio n 5 .5 2 1 .3 - 3 .1 8 .1
P u b lic 2 4 .7 2 9 .6 - 1 2 .9 -6 .4
P riv a te - 3 .7 1 5 .9 2 .6 2 5 .0
D u ra b le E q p t - 1 .8 4 .5 8 .6 4 .0
B r S tc k & O rc h D e v - 0 .4 4 .5 - 2 .0 -5 .0
E x p o rts 1 1 .2 5 .6 - 6 .1 7 .7
Im p o rts 1 .9 - 4 .5 - 5 .8 -1 .0
11
9. Growth in net income
inflows remains high.
• Net Factor Income from Abroad
grew a healthy 15.9% in H1 2008
• Partly due to drop in outflows
(-4.8%)
• Wage remittances grew 11.1%;
property income inflows fell 5.1 %
12
Currency Movements
Weak $ no longer the main driver
13
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 of poor families increased by
700,000
Fact:
Average Filipino family income had
gone down in recent years.
Family Income & Expenditures Survey:
• Average annual family income fell from
P148,000 in 2003 to P144,000 in 2006 (in
real terms, i.e. constant 2003 prices)
• First time FIES average real income fell
• Middle & lower income groups took the
biggest hit
• Share of labor income in GDP is falling
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14
Profile of the Jobless
15
Hunger has also risen again
again……
16
Other human development
indicators have worsened
• Enrollment rates in
elementary school are
declining
• Drop-out rates are rising
• Protein & calorie
malnutrition among
children are rising in many
areas
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17
The US Slowdown:
And The Plot Thickens
― “Slow motion recession”
― Fannie May/Freddie Mac bail-out
― Car sales slump by 18% (GM), 21%
(Toyota) & 28% (Ford)
― Job losses continue to mount
― Starbucks announces >600 store
closures and 12,000 job cuts
― Widespread store closures and job
cuts announced
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US Store Closures
18
US Store Closures
― Zales, Piercing Pagoda
: 105 stores
― Disney Store : 98 stores
― Home Depot : 15 stores
― Macy’s : 9 stores
― Movie Gallery : 140 stores,
: 920 rentals
― Pacific Sunwear 153 stores
― Pep Boys : 33 stores
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US Store Closures
19
Tax & Revenue Effort Faltering
25.0
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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Non-economic Impediments
• Governance Weaknesses
―Tax Evasion
―Smuggling
―Massive Graft & Corruption
―Regulatory Capture
• Political Uncertainty
―Weakened Institutions
―Leadership instability (Cabinet
reshuffles; weak Presidency)
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20
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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21
Domestic Drivers
Sustained overseas remittances
fuels consumption spending
Agricultural “supply response” to
higher prices
Rebound in private domestic
investments (replacement
investment & technology
upgrades)
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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 (e.g.
less eating out, car pooling, MRT)
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22
Sectoral Outlook: Near Term
Slowdown:
Motor vehicles, Consumer durables
Electronics, Apparel, Recreation
Finance (Banks, Insurance)
Power, Transport
Neutral (at pace with overall growth):
Food Mfg, Business Services
Gainers:
Agriculture, Real Estate, Tourism(?)
Ateneo Center for Economic Research and Development
Ateneo Macroeconomic
Forecasting Model
(AMFM)
2008 Projections from
Econometric Model
GDP Growth - 4.5-5.3%
Inflation - 9.0-10.0%
Unemployment - 7.5-8.5%
Assumes: Exchange Rate - P45
Crude Oil Price - $120
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23
Where Do We Need To Push?
Agriculture: budget reform; transpa-
rency mechanisms; stronger LGU roles
Tourism: more liberal aviation policy
environment; focused investments
Construction: durable govt revenues
Real Estate, BPOs: mixed effects from
US & global slowdown
Mining: social & environmental
responsibility, confidence building
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24
Addressing the Countryside Penalty
And yet Metro Manila:
Already accounts for one-third of the
country’s total incomes
Accounts for close to half of the
economy’s total income growth
Enjoys a lion’s share of the
infrastructure budget
Receives government subsidy
assistance indiscriminately
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Broadening Economic
Development
• Need to reverse anti-countryside bias of
economic policies, interventions and
outcomes
• Growing hope in successful LGU
initiatives
• National government should limit itself to
“steering,” let LGUs do the “rowing”
• There is hope: Well-managed LGUs
are showing the way
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25
E-mail: chabito@ateneo.edu
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