The Philippines Under
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The Philippines Under 'Aquinomics’. Presentation on the Economic Performance and Outlook for MEPI. Cielito F. Habito, Ph.D. Professor of Economics & Director, Ateneo Center for Economic Research & Development Ateneo de Manila University. Overview. Where We Have Been: 50 Years A Laggard

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Cielito f habito ph d professor of economics director

The Philippines Under

'Aquinomics’

Presentation on the Economic Performance and Outlook for MEPI

Cielito F. Habito, Ph.D.

Professor of Economics & Director,

Ateneo Center for Economic Research & Development

Ateneo de Manila University


Overview

Overview

  • Where We Have Been: 50 Years A Laggard

  • Where We Are Now: Key Economic Trends

  • What It All Means for Filipinos

  • Outlook & Imperatives

    • Economic Drivers & Downers

    • The Challenge of Inclusive Growth

    • Where We Need to Push

    • Outlook for Pharmaceuticals

    • Long Term Prospects


The philippines thailand estranged twins

The Philippines & Thailand:Estranged Twins


Fifty years a laggard

Fifty Years A Laggard

  • In 1960, average income in RP was twice that of Thailand; now it is the reverse

  • Other East Asian economies’ GDP grew annually at 3.6-6.0%; RP only grew 1.4%

  • Per capita GDP has grown 19 times in China, 8 times in Thailand, 6 times in Malaysia & Indonesia, but only 2 times in RP

  • At current rates of per capita income growth, WB estimates it would take RP >200 years to reach the average per capita GDP of the OECD (developed) countries


Cielito f habito ph d professor of economics director

Top Heavy GrowthBottom-Heavy Needs

  • Narrow: Growth is propelled primarily by a few leading sectors and geo-graphic areas

  • Shallow: Weak linkages to rest of economy – e.g., low domestic value-added exports

  • Hollow: Jobless growth; poverty-increasing growth


Cielito f habito ph d professor of economics director

Top-Heavy Growth,Bottom-Heavy Needs

  • Poverty incidence rose from 30% in 2003 to 33% in 2006, and 37% in 2009 (NSCB)

  • Real per capita income fell 10% nationally, and fell in 50 provinces between 2003 and 2006 (NSCB)

  • Basic education enrollment rates dropped in 75% of provinces between 2002 & 2004 (PHDR 2009)

  • Wide disparities in life expectancy across provinces: Low - 53.4 (Tawi-tawi); High - 74.6 (La Union) (PHDR 2009)


Cielito f habito ph d professor of economics director

a.k.a.Broad-Based Growth:

Sectorally

Geographically

Temporally

Wanted:

Inclusive Growth


Assessing economic performance the pitik test

Assessing Economic Performance: The “PITIK Test”

The Essential Yardsticks (P-T-K):

  • Price Stability(Presyo)

  • Jobs (Trabaho)

  • Incomes (Kita)


Cielito f habito ph d professor of economics director

Ateneo Center for Economic

Research and Development

The Economy Last Year & Now:Good News &Bad News

  • Prices: Rose faster than in 2009, but more slowly than projected; now ticking up again

  • Jobs:Jobs caught up with labor force growth – but job quality remains a challenge

  • Incomes/Output: Strong Overall

    • Manufacturing surged

    • Services saw robust growth

    • But agriculture declined


Cielito f habito ph d professor of economics director

Ateneo Center for Economic

Research and Development

The Economy Last Year & Now:Good News &Bad News

  • Investment and Exports: strong rebound, even with dropping foreign investment inflows

  • Balance of Payments: favorable last year; has now turned negative

  • Peso: appreciating with weak dollar and amid “currency war”

  • Net Income Inflows: slows to single digit growth; now facing new threats

  • Fiscal Deficit: too big for comfort


Cielito f habito ph d professor of economics director

Presyo:

Inflation Trends

2007-Present

9.3%

4.3%

3.8%

3.2%

2.8%

2007 2008 2009 2010 2100


Trabaho latest jobs survey mixed picture

Trabaho:Latest Jobs SurveyMixed Picture


Cielito f habito ph d professor of economics director

Kita:

Incomes/Production (GDP):

2010: Renewed Industrial Vigor

  • Surge in Private Construction (19.1%) and Durable Equipment (25.7%)

  • Exports up 33.7% in Dollar values (25.6% in real terms)

  • Consumption growth surges in Q4 (7% from normal 4-5%)

  • Manufacturing up by double digits

  • Private services (esp. media) up 8.8% (media surged 31.4% in Q1)

  • Spoiler: Agriculture declines 1% (but bounced back in Q4)


Cielito f habito ph d professor of economics director

Overall Output/Income GrowthIndustry Takes the Lead


Cielito f habito ph d professor of economics director

Industry Leads the WayManufacturing Makes

A Comeback


Gross regional domestic product 2008 2009

Gross Regional Domestic Product, 2008-2009

Bicol Region grew

fastest

4 Regions declined


Cielito f habito ph d professor of economics director

Private Investment Surges…

Govt Spending Takes the Background


Cielito f habito ph d professor of economics director

… even as FDI dips

Inflows Down, But Intentions Up

Top 2 Sources: Japan, Netherlands

89% in Manufacturing


Cielito f habito ph d professor of economics director

Remittances slowed in 2009, but picked up anew


Cielito f habito ph d professor of economics director

How do recent economic trends translate to human welfare and poverty of Filipinos?


Cielito f habito ph d professor of economics director

The Economy in Human Terms

  • Poverty rose from 24.9% (2003) to 26.5% (2009) [Under old definition: 30% (‘03) to 33% (‘06) to 37% (‘09)]

  • No. of poor Filipinos up by 970,000, or 185,000 families between 2006 and 2009 (Poverty line: P7,017/month per family of 5)

  • Net elementary school participation rate down from 97% in 2001 to 85% in 2008

  • Net high schol participation rate down from 66% to 62%

  • Malnutrition incidence went up in most provinces


Self rated poverty 49 of filipinos feel poor q4 2010

Self Rated Poverty: 49% of Filipinos feel poor (Q4-2010)

Lowest since Cory Aquino – but is it really?


Hunger roller coaster

Hunger: Roller Coaster


Sws q1 10 puzzle self rated poverty down but hunger up

SWS Q1-’10 Puzzle:Self-Rated Poverty Down But Hunger Up

  • Of the 4 million households reporting hunger in March 2010, only 2.6 million rated themselves as Poor.

  • A significant 1.4 million who suffered from hunger did not consider themselves to be Poor.

  • Living standards had dropped so low that standard of “poorness” has dropped (misery loves company)


Outlook imperatives

Outlook & Imperatives


Why 2011 should be better

Why 2011 Should Be Better

  • Recovery from El Niño

  • Resurgence in investment (especially domestic)

  • Proven “immunity” to global slowdown

  • Remittances continue growth

  • “Rebalancing” of Asian growth toward more internal, intra-regional demand


Why 2011 should be worse

Why 2011 ShouldBe Worse

  • Possible double-dip recession (W-shaped recovery) in the West?

  • European economies under threat

  • Middle East unrest and new inflation pressures

  • Peso appreciation (mixed effect)

  • Japan earthquake/tsunami and nuclear disaster

  • Medium Term: Heavy debt burden and continued fiscal pressures


Where is the peso going

Where is the Peso Going?

Euro

Baht

Sing$

Peso

Rupiah


Achieving inclusive growth where to push

Achieving Inclusive Growth:Where To Push

  • Revenues: Restore tax effort to 17%; mostly from collection/compliance boost; sin taxes, trim excess tax perks

  • Infrastructure:Massive catch-up program needed; needs above revenue boost &/or better BOT rules

  • Investment:Now exceeded by savings; confidence boost needed

  • Democratize Growth: Massive SME boost, asset reform, competition policy (esp. with PLDT-Digitel merger)


Sectors to watch sectors to push

Sectors to Watch,Sectors to Push


Agriculture agribusiness

Agriculture & Agribusiness

  • End of El Niño droughts

  • Rebound from 4-quarter decline

  • Ongoing budget reforms promise positive results

  • DA to “steer” while LGUs “row”

  • Remittance-fueled consumer food demand may taper in short term due to external developments


Tourism allied industries

Tourism& Allied Industries

  • Focused investments under Tourism Act of 2009 underway

  • Pocket open-skies policy to lower costs, hike tourist arrivals

  • Improved peace prospects in Mindanao; tourism a major thrust in Mindanao 2020 Plan

  • “Appreciation lag” of Peso vs. neighboring currencies can make PH relatively more attractive


Business process outsourcing

Business Process Outsourcing

  • Sustained demand growth projected for long term

  • Indian firms now moving into Philippines

  • Need to address dwindling skilled recruitable personnel

  • Important driver of real property development sector


Construction

Construction

  • Private construction is on a rebound (19.1% growth in 2010)

  • Massive infrastructure push (GAA & PPPs) is imperative & inevitable

  • Revenue performance needs clear improvement; PPP policy environment needs constant improvement

  • Huge unmet demand in low to medium-cost housing


Manufacturing

Manufacturing

  • Electronics: Continued dominance

  • Food & Beverages: Rising average incomes; elastic demand for processed food steady medium to long-term growth

  • Design-based manufactures: Innate competitiveness (e.g. Cobonpue, Lhuillier)


Pharmaceuticals

Pharmaceuticals

  • Projected annual PH market growth rate to 2015: 6.9% (BMI)

  • Drivers:

    • Cheaper Medicines Act (Elastic demand leads to higher gross sales)

    • Mergers/industry consolidation (Greater stability)

    • Universal PhilHealth coverage by 2015 (Wider market)


Cielito f habito ph d professor of economics director

Economic Outlook: 2011

  • Presyo:

    • Inflation projected to inch upward to 5-6%

  • Trabaho:

    • Marginal improvement at 7-8% unemployment

  • Kita:

    • Consensus GDP growth projection: 5-6%


Long term outlook building on inherent strengths

Long Term Outlook:Building on Inherent Strengths

  • Exceptionally rich natural & human resources

  • Strategic geography (transshipment, shipbuilding/repair, tourism)

  • Favorable global, regional trends (e.g. aging, medical tourism, outsourcing)

  • Resilient, adaptable people, in high demand worldwide

  • Completing the picture: Good

    Governance is key!


Checklist for good governance

Checklist For Good Governance

  • Quality Appointments to Cabinet, revenue and regulatory agencies

  • Zero Tolerance for Corruption: an unequivocal policy

  • Decentralized Governance where NG “steers,” LGUs “row”

  • Participatory Mechanisms:bring people to the gov’t & gov’t to the people

  • Streamline Government Processesto reduce cost of doing business


Cielito f habito ph d professor of economics director

Post Script:

Stories from the Countryside

  • Bgy. Lopero, Jose Dalman, Z Norte

    Carabaos, Not Fertilizers:A Farmer’s Plea

  • Magsaysay, Davao del Sur

    Diversified Organic Farming System: A Mayor’s Lament

  • Upland Barangay, Sarangani

    Horses vs. FMR: A Pragmatic Farmer

  • Bottom-up devt; Solutions need not be sophisticated nor expensive!


Cielito f habito ph d professor of economics director

Thank You!

[email protected]


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