Econ slowdown due to failed govt policies, may be sign of worse to come–IBON

November 10, 2018

by IBON Foundation

Research group IBON said that the government should take the economy’s 3rd quarter growth slowdown as showing what needs to be improved in its economic policies instead of being dismissive about it. Its flagship Build, Build, Build will only be a short-term boost to the economy at best and direct measures to strengthen domestic agriculture and build Filipino industry are needed. The group noted with alarm that the economic managers are still pushing the same neoliberal framework that has weakened domestic production to begin with.

IBON pointed out that the economy’s acclaimed higher growth trajectory since the 2000s has actually been slowing in the last two years of the Duterte administration. Previously accelerating growth in gross domestic product (GDP) plateaued at 7.1% in the third quarter of 2016 and 7.2% in third quarter of 2017 before markedly slowing to the recently reported 6.1% in the third quarter of 2018.

The worsening state of agriculture and weakening growth in manufacturing – both key production sectors – are important indicators that the administration’s neoliberal policies are failing, said the group. Agriculture is stuck in its cycle of alternating growth and contractions. Agriculture growth has been falling from 3% in the third quarter of 2016 to 2.6% in the same quarter in 2017 until its -0.4% growth in the third quarter of 2018. The last such contraction was three years ago. The fisheries sector has consistently been contracting in the same period for four consecutive years now.

IBON said this chronically poor and deteriorating agricultural and fisheries performance is due to long-standing government neglect of the sector. The administration only exacerbates this by pushing further trade liberalization such as with Administrative Order No. 13 and the Rice Tariffication Bill that prioritizes food imports and export crops production over strengthening domestic agriculture for local consumption and food security, the group said.

IBON also drew attention to the notable slowdown in manufacturing growth to 4% in the third quarter of 2018 from 10.1% in the same quarter of 2017. IBON pointed out that this happened despite a hyped manufacturing resurgence since the Aquino administration and supposedly greater attention to industrial policy in the last two years of the Duterte government.

Among others, the slowdown despite increased government infrastructure spending points to the lack of domestic manufacturing capacity to produce the wide range of materials and equipment used for infrastructure development. These are instead unduly imported which only worsens the chronic trade deficit and adds further pressure on the already weak peso.

The service sector was also not spared, slowing to 6.9% from 7.3% in the same period, the group noted. This likely reflects the slackening of business process outsourcing (BPO) activity, which also greatly slowed services exports down to 2.2% in the third quarter of 2018 from 27.7% in the same period last year. As it is, investment pledges in export zones where BPOs are registered dropped by 58.6% in the first four months of 2018 to Php39.1 billion from Php94.4 billion a year ago.

IBON said that economic growth is disproportionately driven by government spending particularly in public infrastructure and construction. Government expenditures rapidly grew in the past 3 years from 3.6% in the third quarter of 2016 to 8.3% in 2017 and 14.3% in 2018. Meanwhile, growth in public construction spending doubled from 12.7% in the third quarter of 2017 to 25.4% in 2018. Private construction meanwhile jumped from 0.7% to 12.1 percent.

Household consumption slowdown is also worrisome, said the group. It indicates that Filipino households, especially the poor, are buying less, eating less, and suffering even lower levels of personal welfare. Growth in household consumption has been slowing in the past three years – from 7.3% in third quarter of 2016 to 5.4% in 2017 and 5.2% in 2018. There is a similar decline in most expenditure groups except for Housing, Water, Electricity, Gas and Other Fuels and Education. In particular, growth in food and non-alcoholic beverages consumption slowed to 2.8% in the third quarter of 2018 from 4.3% a year ago.

IBON said that the economy fails to ensure sustained growth because it has been eroded by government’s push for trade and investment liberalization, reliance on exports, and obsession with foreign investment as an end in itself. The group said that the government infrastructure offensive will be a short-term boost at best if the foundations of developed agriculture and Filipino manufacturing driven by expanding wage-led domestic demand are not attended to.###