After a very challenging 2018, the coming year is seen to be much better for the Philippine macroeconomy.
This was the consensus among economic managers and business leaders at the “Pilipinas Conference” recently organized by independent think tank Stratbase ADR Institute in Makati City.
Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said the Philippine economy was poised to sustain strong growth in the coming years. He also assuaged concerns on overheating.
“Reforms have helped propel the economy to an impressive streak of 79 consecutive quarters of uninterrupted growth. That means 19 years and three quarters since the first quarter of 1999. Moreover, the structural reforms have been translated into higher potential output for the economy,” Guinigundo said.
Based on BSP estimates, potential output growth has been rising, averaging 6 percent for the period 2010 to 2017.
“So, the talk about the large output gap is without basis. Our output gap is either a small positive or a small negative. So, the issues about overheating are quite misplaced,” Guinigundo said.
An output gap suggests that an economy is running at an inefficient rate—either overworking or underworking its resources. It is an economic measure of the difference between the actual output of an economy and its potential output.
Neither a positive or negative output gap is ideal. A positive output gap occurs when actual output is more than full-capacity output, which happens when demand is very high and factories and workers operate far above their most efficient capacity. A negative output gap, on the other hand, means that there is spare capacity, or slack, in the economy due to weak demand.
George Barcelon, chair of the Philippine Chamber of Commerce and Industry, said the economy would certainly grow in 2019 but it could be higher if more reforms—particularly those aimed at uplifting small-and-medium enterprises (SMEs)—would be fully implemented.
“Ease of doing business, power facilities can help SMEs to propel the growth of countries. The government should focus on both education and skills training, which is crucial for economic growth and what causes us for being uncompetitive,” Barcelon said.
In addition, Barcelon said the government should act consistently with the law to entice conglomerates to invest.
Economist Raul Fabella, professor emeritus at the University of the Philippines School of Economics, compared economic growth as the “new normal versus old normal.” Fabella said that in the second year of Duterte’s administration, growth in manufacturing slowed down and expressed hope that this would not persist as manufacturing is linked to poverty reduction.
“Inclusion as poverty reduction fares better when manufacturing growth exceeds services growth in low-income countries,” Fabella said.
“A balance between strategic engagement and strategic retreat is imperative for managing the economy and steering the country’s development. In short, state-market synergy is key to address the primordial concern of a developing nation like the Philippines,” said Stratbase ADRi president Dindo Manhit.
“Poverty reduction and labor expansion should be prioritized to demonstrate the presence of inclusive growth. The volatile growth of the manufacturing sector in relation with the service sector reveals an indeterminate improvement for labor. In turn, poverty reduction cannot simply be addressed through doleouts. Reducing poverty undeniably necessitates both political and economic reforms,” he said.
Calixto Chikiamco, president of the Foundation for Economic Freedom, said the country failed to achieve its target of reducing poverty incidence to 17.2 percent by 2015 and instead hit 21.5 percent.
“The slowdown in overseas Filipino workers’ remittance growth, innovations in business process outsourcing sector, import growth far outpacing export growth, and declining government international reserves are among the challenges of rising current account and trade deficit,” Chikiamco said.