Domestic employment and higher incomes are more sustainable sources of demand and economic growth
The economic slowdown may indicate the end to the brief episode of rapid growth, said research group IBON. Unsustainable external growth drivers like low interest rates, overseas Filipino workers earnings and exports are moving adversely, while domestic jobs and higher incomes that are the important foundations of domestic demand have not been created to compensate for this.
Growth in gross domestic product (GDP) slowed for the second year in a row to 5.8% in 2015. GDP growth has been slowing from its peak of 7.1% in 2013, to 6.1% in 2014, and then 5.8% last year.
IBON observed that global and domestic interest rates fell to their lowest in decades after the financial crisis in 2008. This made private debt soar from the equivalent of 31% of GDP in 2010 to 41% in 2014, with total bank loans reaching Php5.4 trillion in November 2015. The cheap financing fuelled real estate, construction, and manufacturing. Rising interest rates last year has already slowed loan growth, which will likely continue in 2016, said the group.
Earnings of overseas Filipino workers are recorded as compensation inflows under net primary income in the national accounts. Compensation inflows slowed sharply from 10.9% growth in 2013, to 4.5% in 2014, and then 2.8% last year. Slowing growth in overseas Filipino earnings has already reflected in slowing remittance growth in the balance of payments.
The sluggish world economy has drastically slowed exports from 11.3% growth in 2014 to 5.5% in 2015, added IBON. The protracted global crisis may even worsen in 2016 with growing risks from China’s slowdown, falling commodity prices, accumulating Eurozone debt problems, and geopolitical flashpoints in the Middle East, Asia and Europe.
Domestic employment and higher incomes are more sustainable sources of demand and economic growth than these external factors. Yet job creation has slowed to an average of just 692,000 annually over the period 2010-2015 from 732,000 annually in the decade before when the economy was much smaller. The real value of the average daily basic pay of a wage and salary worker has increased by just 5.8% between 2010 and 2015.
Economic policy has to be radically changed to make the economy grow in a way that improves the welfare of the majority, said IBON. Local agriculture and Filipino industry need protection and support to generate jobs and increase incomes. Economic gains should go to incomes of the working people more than the profits of a few. Land and other productive assets have to be redistributed to the poor.
