The Economic Perspective

Cielito F. Habito, Ph.D.

Columnist, Philippine Daily Inquirer
Director, Ateneo Center for Economic Research &
Development

Ateneo Center for Economic Research and Development

 What’s the State of the
Philippine Economy?
Of the three key variables that
matter most to the common
Filipino - prices, jobs, and
incomes - all three now show
qualified improvement, but the
jobs situation remains weak and
tentative.

Ateneo Center for Economic Research and Development

First Quarter ‘07 Highlights:
Strengths
• Prices remained stable
• Employment shows some
(qualified) improvement
• GDP grew at a (surprising)
record 6.9 percent
• Equity, currency markets on
bull run
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First Quarter ‘07 Highlights:
Threats
• Fiscal balance deteriorating
Revenues below target
Deficit exceeding target
• Foreign direct investment fell
in Jan-Apr 2007
• Export growth has weakened
• Imports fell in real terms
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Inflation is at a historic low…
Year Inflation Rate (%)

2002 3.1
2003 3.1
2004 5.5
2005 7.6
2006 6.2
2007 Target 4.0-5.0
2007 To Date 2.7
Jun-07 2.3
 …although still higher than
most of our neighbors in 2006
Inflation Rates, Percent

6.3
7.0
Only Indonesia has a
6.0 worse inflation record
4.3
5.0

3.1 3.2
4.0

3.0 2.2

2.0

0.4
1.0

0.0
-1.2 -0.1
-1.0

-2.0
TWN CHI SIN KOR MAL THA RP INDO
Employment:
Improving Picture?
Latest Year Prev Year
Employment (NSO-LFS)
Period Ago Period Average
(Jan-Apr 2007)
Unemployment Rate (%) (Apr '07) (Apr '06) (Jan '07)
Old Definition -- --
New Definition 7.4 8.2 7.8 7.6

Jobs Generated ('000) 1007 478 1515 1,278

Agriculture 583 288 -38 266
Industry 26 -4 103 61
Services 431 195 1450 950

Underemployment Rate (%) 18.9 25.4 21.5 20.2

Jobs by Type ('000) Apr '07 Percent Apr '06 Percent Change
Wage & Salary Workers
Ateneo 17,224 Research
Center for Economic 51.1 and16,546 50.6
Development 678
 …but the Latest
devil
Employment (NSO-LFS)
Year isPrev
in the
Year

Unemployment Rate (%)

details
Period Ago Period

(Apr '07) (Apr '06) (Jan '07)

Average
(Jan-Apr 2007)

Old Definition
Jobs by Sector Apr--2007 --
Apr 2006 New Jobs
New
Agri Definition 7.4
11,865 8.2 11,281 7.8 7.6
583
Agri, Hunting & For 10,280 9,842 438
Jobs Generated ('000) 1007 478 1515 1,278
Fishery 1,550 1,439 112
Agriculture 583 288 -38 266
Industry 5,258 5,232 26
Industry 26 -4 103 61
Manufacturing 3,067 3,172 -105
Services 431 195 1450 950
Mining 169 163 5
Utilities
Underemployment Rate (%) 135
18.9 25.4 131
21.5 4
20.2
Construction 1,854 1,733 121
Services 16,617 16,186 431
Jobs by Type ('000) Apr '07 Percent Apr '06 Percent Change
Wage & Salary Workers 17,224 51.1 16,546 50.6 678
Own Account Workers 12,067 35.8 12,262 37.5 (195)
Unpaid Family Workers 4,415 13.1 3,891 11.9 524
 Profile of the Unemployed
• 2.7 million are unemployed under new
definition; about 4 million based on old
definition, i.e.+ frustrated jobseekers
• 6.4 million are underemployed; mostly
in agriculture
• Of the unemployed:
80% are within ages 15-35 years
61% never went beyond high school

Ateneo Center for Economic Research and Development

RP growth currently slower than
ASEAN GDP Growth Rates, 2002-2006
most…
% 16.0
&…SÍI
14.0 &Þ.&
&7p Phi
& WØS
12.0
&é)1
&B Š
CAM
10.0 &›Rã
&ô
VI ET
8.0 SI N
LAO
MAL
6.0 I NDO
PHI L
THAI
4.0

2.0

0.0
2002 2003 2004 2005 2006
Year

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 What pushed Q1 growth?
• Production side: Services
Finance (13.4%)
Metro
Real Estate (18.6%)
Manila

Communication (10.1%)
• Spending side:
Government Consumption (13.1%)
Public Construction (16.9%)
Exports (9.1%)
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Bullish Markets, Empty Pockets:
Why the “Disconnect”?

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 Why is it not good news for
most Filipinos?
• Sectors with broader and poorer base
(esp agriculture) grow the least
• Fastest growers are low-job sectors
• Job generation has been weak and of
low quality
• Market trends driven more by global
forces than by domestic developments
• Political & economic power structures
continue to bias growth, limit benefits
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Where did growth come from (2006)?
Contrib
to Contrib
Growth Growth to Growth Percent
INDUSTRY Rate (%) (%) Rate (%) Jobs of Jobs

AGRI/FISHERY/FOR 1.9 8.3 0.4 12,164 36.7

INDUSTRY SECTOR 3.3 22.4 1.1 4,895 14.8

Mining & Quarrying -24.7 -8.1 -0.4 116 0.3
Manufacturing 4.4 22.3 1.1 3,052 9.2
Construction 4.7 3.5 0.2 1,619 4.9
Elect, Gas & Water 8.3 4.6 0.2 108 0.3

SERVICE SECTOR 7.0 69.3 3.3 16,126 48.6

Trans, Comm & Stor 8.0 14.5 0.7 2,471 7.4
Trade 6.1 22.5 1.1 6,226 18.8
Finance 8.3 8.5 0.4 372 1.1
Own Dwell & R Est 6.7 6.0 0.3 815 2.5
Private Services 8.3 13.6 0.7 4,700 14.2
Govt Services 5.2 4.2 0.2 1,542 4.6

GROSS DOM PROD 4.8 100.0 4.8 33,185 100.0

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Where did the growth come from?
Metro Manila and Surrounding Provinces
GRDP Growth Rate Share to Contrib to
REGION
2004 2005 Total Growth

RP 6.2 5.0 100.0 100.0

NCR 8.4 7.1 31.9 44.7
Metro CAR 3.7 1.1 2.3 0.5
Manila I 5.4 6.0 3.0 3.6
II 10.4 -5.4 55.7% 61.2%
2.0 -2.4
III 1.8 2.9 8.5 5.1
IVA 4.0 3.0 12.5 7.8
IVB 4.1 6.5 2.8 3.6
V 5.7 5.0 2.8 2.8
VI 7.6 5.9 7.3 8.6
VII 6.9 6.0 7.1 8.5
VIII 5.2 4.0 2.2 1.8
IX 4.1 7.2 2.6 3.7
X 7.2 3.8 4.8 3.7
XI 6.5 5.0 4.6 4.6
XII 5.8 2.3 3.5 1.6
ARMM 5.2 3.9 0.9 0.7
XIII 3.1 3.5 1.3 0.9

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 Growth for whom?
• Agriculture: 36.7% of workers, but only
8.2% of the growth in Q4 ’06
• Manufacturing
Metro
& Trading: 45% of GDP
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 is still not occurring where jobs
are needed most.
Ateneo Center for Economic Research and Development
 The Great Disconnect:
Foreign Investments surged last year…
Foreign Investment Latest Year Prev Year
Indicators (% gr) Period Ago Period Average
Q3 '06 Q3 '05 Q2 '06 Q1-Q3 '06

Total Approved FDI 121.1 124.2 314.9 155.7

BOI 70.0 43.1 46.4 18.7
PEZA 122.9 266.0 114.4 41.7
SBMA -14.7 40.2 3,422.3 9,209.6
CDC 6,365.5 -31.0 348.5 4,193.0
Jan-Nov Growth Jan-Nov Growth
'05 Rate '06 Rate
FDI Inflows (BSP) 2,000.0 112.8 1,328.0 50.6

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 …yet total investments still fell
2005 2006 2007
Indicator
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 P
Capital Formation -8.9 -4.1 -0.8 -9.1 0.3 1.5 8.0 1.8 0.6
Fixed Capital -8.1 -2.5 0.0 -4.6 2.4 -1.0 2.1 2.2 2.7
Construction -0.9 4.5 6.0 -6.5 8.0 2.4 6.7 5.7 7.3
Public -13.3 -1.6 7.6 -12.0 36.5 11.8 20.5 39.6 16.9
Private 2.6 4.9 3.1 -5.4 -3.2 -4.0 1.2 -8.7 2.0
Durable Eqpt -12.3 -7.6 -4.1 -2.9 -0.7 -4.1 -1.9 -0.5 -0.4
Br Stck & Orch Dev -0.1 2.5 -0.4 1.1 -1.7 -1.7 1.1 0.8 2.2

Implication: Domestic investment

fell even more sharply
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Latest Bad News:
Foreign direct
investments fell in
January-April 2007

Ateneo Center for Economic Research and Development

 ASEAN Investment
Growth
Country 2002 2003 2004 2005 Average
Cambodia 20.9 41.7 14.1 1.9 19.7
Indonesia - 4.5 10.8 6.4 4.2 4.2
Malaysia 7.6 - 4.1 13.8 - 4.3 3.3
Philippines - 4.3 1.5 9.5 - 4.3 0.6
Singapore - 4.9 - 32.6 34.6 0.9 - 0.5
Thailand 6 13.7 13.8 12.2 11.4
Viet Nam 12.7 11.9 10.6 8 10.8

Ateneo Center for Economic Research and Development

ASEAN Investment Growth
20.0
19.7

15.0

11.4
10.8

10.0

4.2
5.0 3.3

0.6

0.0
- 0.5

- 5.0
Cambodia Indonesia Malaysia Philippines Singapore Thailand Viet Nam

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Economic Imperatives

Foremost Challenge: Spread the

benefits of economic growth
(more broad-based, job-creating
growth)

Ateneo Center for Economic Research and Development

Economic Imperatives
Broad-based growth from:
Agriculture & Tourism
Let LGUs row, while DA just steers

Replicate NorMin Veggies story

Foster SME agri-processing
Seize tourism opportunities:
surging tourism from China, India,
Korea
Ease up on our skies
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Economic Imperatives
• Ramp up revenue performance
• Improve spending quality (more
good economics, less politics in
budget allocation)
• Expand & diversify exports
(products and destinations)
Restore domestic
investor confidence!
Ateneo Center for Economic Research and Development
Overarching Imperative:
It’s (the) Governance, stupid!
• PGMA must convince us that real change
is at hand
– Quality appointments (tap real talents)
– Right policy decisions (greatest good for
greatest number)
– Shed partisanship & vindictiveness
• True & sincere reconciliation, with justice
• Political will (is much more than E-VAT)
PGMA can still redeem herself… but does
she know how? (Or does she care?)
Ateneo Center for Economic Research and Development
 E-mail: chabito@ateneo.edu
Ateneo Center for Economic Research and Development