There is a popular expression that goes “when America sneezes, the Philippines catches a cold.” This goes to show how Washington rocks Manila’s world, economically.
While the United States may still hold sway today, other trade and economic relationships are coming to the fore, economists said.
Manila is apparently “decoupling” from the US, as Gilberto M. Llanto puts it.
An economist with the state-run think tank Philippine Institute for Development Studies, Llanto said in a phone interview that Manila was slowly expanding its circle of friends to cope with an increasingly shifty global economy.
This will allow the Philippines to diversify trade, but it can also mean shocks may strike from different directions.
“To a certain extent, the United States is still a major source of income for the Philippines. The number of countries that has the same ‘contagious’ economic effect, however, has expanded through the years, owing to the more global and open markets for labor, capital and funds. Hence, it is not the US alone that can weaken the Philippines. Japan, Mena (the Middle East and North Africa), the European Union and China could have the same debilitating effect,” Cid L. Terosa of the University of Asia and the Pacific said in a text message.
China, Japan and the rest
China, for one, has evolved from being a “sleeping giant” into a dynamic, more consumption-driven economy.
If China pulls it off, the resulting boom in demand for products and the manufacturing gaps may add 0.5 percentage points to the Philippines’ gross domestic product, said Ruperto P. Majuca, assistant director general for planning and policy at the National Economic and Development Authority.
Among European economies, Britain was particularly aggressive in pursuing business process outsourcing and public-private partnership prospects in Manila.
On the down side, the triple tragedy that struck Japan in the first quarter sent shockwaves to Manila’s electronics exporters, among others. This, together with political strife in Mena and the debt problems in Europe, had Manila worried enough to pirouette from underspending in 2011 to pump-priming in 2012.
There is an ongoing P72.1-billion “disbursement acceleration program,” and government is looking for more projects to fund, Socioeconomic Planning Secretary Cayetano W. Paderanga Jr. said in an interview.
For Benjamin E. Diokno of the UP School of Economics, however, “nothing has changed.”
The United States, he said, remains as a major trading partner, source of foreign investment and the largest source of remittances.
“A big part of our exports to China, Japan, South Korea, and other major exporting nations eventually end up in the US. The US market becomes even more important for the Philippines in the face of growing uncertainty in other parts of the world. Mena, the EU area and even China are facing slower growth for many years. That makes the US a critical source of growth for the Philippines,” Diokno said.
Majuca, meanwhile, says it is all one big balancing act.
“Although Europe and China are gaining importance, the US still retains the biggest influence,” he said, even as he noted that China was becoming a major influence on other economies as well.
On Mena, Japan, oil prices and the euro zone debt crisis, Majuca said the origin of the shocks might not be the United States but it is the impact of these developments on the US economy that indirectly effects the Philippines.
Wanted: Growth from within
Majuca welcomed recent data showing Washington’s economic trajectory pointing upwards and the projection that its fourth quarter GDP growth might exceed 5 percent.
“That bodes well for the Philippine economy as well,” Majuca said.
Paderanga said the government was already working with the trade sector to expand exports in new and existing markets. The government also expects greater diversification in the services sector, particularly in business process outsourcing, to bring in more business for the Philippines.
At the same time, Paderanga said, government spending was accelerating under its P72-billion stimulus spending package. He expressed optimism that public and private construction would both pick up in the fourth quarter.
Infrastructure spending is seen to gain momentum in 2012.
After having completed the bidding for one public-private partnership (PPP) project this December—the P2-billion Daang Hari-South Luzon Expressway link road—the Philippine government aims to bid out 16 more in 2012, according to Ronaldo F. Corpus, project development service director of the PPP Center.
This is crucial as the PPP program is the crux of the Aquino government’s medium-term plan to grow the economy at an average yearly rate of 7 to 8 percent until 2016 in order to make a headway in the campaign to eradicate poverty.
Economists, business groups and trade analysts pointed out that delays, reevaluations and the slow start of the PPP program had taken their toll on economic growth.
The country’s gross domestic product grew by 3.6 percent in the first three quarters of 2011—lower than the 8.2 percent reported in the same period last year, the Neda said.
Compared to its neighbors such as China, Indonesia, Vietnam, Singapore and Malaysia, the Philippines’ growth rate fell in the lower range.
Strong public spending
At this rate, the Philippines should be happy with a 4-percent rise in GDP this year, private economists said.
They have in fact raised their collective eyebrows when the Neda announced that the Philippines had a “good chance” of meeting its 4.5 to 5.5 percent economic growth target for 2011, and the 5 to 6 percent range projected for 2012.
“Modest growth in the first half of 2012 will depend solely on strong, coordinated and simultaneous public spending,” Diokno said. “The economic malaise may persist until the first half of 2012. I don’t foresee a quick turnaround.”