Future seen bleak without clear road map

The Philippines could eke out a growth of 4 percent in 2011, and 4 to 5 percent in 2012, according to economist Benjamin E. Diokno of the UP School of Economics.

This estimate is below the government target but slightly more optimistic than those offered recently by the Asian Development Bank and the World Bank.

In a presentation before the Philippine Business Forum over the weekend, Diokno also said that, in the medium term, the Philippine economy would grow below its previous peak, in line with slow, new “normal” growth rate for the world economy.

The “impressive” 7.6 percent economic growth in 2010 (in terms of gross domestic product, or GDP) was brought on by election spending, frontloading of public spending, and base effects, Diokno explained.

In fact, he said, the past three peaks of economic growth (2004, 2007, 2010) all coincided with national and local elections.

Without strong government spending and world recovery, a sustained 7- to 8-percent GDP growth for the Philippines is unlikely, Diokno said.

The Aquino administration’s medium-term development plan aims for an average annual GDP growth of 7 to 8 percent by 2016 to significantly reduce poverty.

Currently, the numbers look bleak. The International Monetary Fund’s revised outlook as of September 2011, Diokno said, projected that the Philippines could go from being among the best performers in five Asean economies in 2009 to being the second-worst performers in 2011 and 2012.

From January to November 2011, merchandise exports contracted by 5.6 percent compared with the same period in 2010.

“I forecast that exports of goods will decline by 5 to 6 percent for the full year (2011),” Diokno said.

Remittances are not expected to show strong growth amid volatile key labor markets such as Europe and the United States, while the disruptive effects of climate change such as drought and stronger typhoons add to Philippine industries’ worries, which include increasing commodity prices, power rates and foreign exchange rates.

Mining shows some promise, but manufacturing and construction are not expected to perform well.

Diokno stressed that with a “contractionary” budget, the problem of underspending was serious in 2011.

The magnitude of underspending, he said, increased from P32.2 billion in the first quarter to P90.8 billion in the third quarter. Actual spending fell away from program spending during that period.

He also said the budget deficit might balloon to three percent of GDP in 2012.

Looking ahead, Diokno said there is hope for further growth in the Philippine economy, but only if our leaders can implement a clear, decisive road map.

“During the next few years, while the world economy is going through a period of adjustment, our leaders should focus on rebuilding the country’s crumbling infrastructure and on strengthening its weak public institutions,” Diokno said.