We knew we were in it. But it is now officially acknowledged: the Philippines is in stagflation.
The acknowledgement was made by the Congressional Policy and Budget Research Department (CPBRD). In its recent discussion paper, the CPBRD recognized that our GDP growth is unlikely to exceed three percent in the next few quarters. Inflation will be elevated at around eight percent into the foreseeable future. Unemployment will hover at around five percent.
This is bad news for all Filipinos. It adds to the already dismal outlook that pervades out lives. It brings us closer to that dreaded R-word: recession.
In the first quarter of this year, Philippine GDP grew by only 2.8 percent. From being growth leader in the ASEAN region, we are now the drag.
Average growth for the region is now expected at only three percent. Philippine growth will likely be below that average. Vietnam, the region’s investment darling, is aspiring for growth of over seven percent this year. We will eat their dust.
Stagflation occurs when three things happen simultaneously: slow economic growth, high unemployment and rising prices. Each feeds on the other. Standard solutions do not apply.
Stagflation was coined during the ’70s to describe the paradoxical confluence of economic stagnation, high inflation and widespread job losses. Before that, monetary solutions seemed workable: raise interest rates to cool inflation when prices rise fast or pump-prime economic activity when growth is slow.
Under conditions of stagflation, increasing interest rates will aggravate stagnation. Public spending to induce growth, on the other hand, will fan inflation.
As it was during the ’70s, our current bout with stagflation was brought about by an oil price shock. But that single factor alone does not fully explain why we are in this mess. Like us, Vietnam also suffered from the price shock caused by the senseless war on Iran instigated by Trump and Netanyahu. But our neighbor intends to grow her economy at more than twice the rate we could muster.
For that matter, the entire global economy suffered from the recent oil price shock. But most of the world will continue to grow at a faster pace than us. Filipinos are suffering more misery than most others because of the elevated oil price regime. We expect more malnutrition and stunting, more expensive food and less available employment. The dislocation of our traditional markets for migrant labor adds to our unemployment woes.
To a major extent, the collapse of our first quarter economic growth is due to the failure of government to undertake the spending it was expected to do. Many government infra projects stalled the past few months – in part because of the fallout from the public works scandal and in part because of sheer lack of effort on the part of government.
Even the much-vaunted housing program falls short of the levels set in the two previous administrations. We are not effectively addressing the classroom shortage. Government response to the slowdown is almost entirely focused on dole-outs. We have subsidies in every imaginable variety – none of which improves the competitiveness of our economy.
Falling into stagflation at this time brings massive opportunity costs for our national development. We are supposed to be in a “demographic sweet spot” for a growth spurt. Our young population is capable of supporting a much higher growth rate.
This “demographic sweet spot” is about to pass soon. As Boo Chanco discussed in his column yesterday, we will probably grow old before we get rich. Our population growth rate has fallen to 1.7 percent. That brings it to below replacement rate. Some are suggesting our population rate could fall much faster than Japan’s. We will shift to a society of seniors before making it over the growth hump.
In this happens, our children many years from now will remember this period as a lost decade for the country. While our governance failed, the country could not seize the opportunities for development that opened up while we tolerated clowning disguised as leadership.
Stagflation tends to stick. It will not come and go like a bad cold. Some countries that have fallen into stagnation remain trapped in that condition for years, for generations even. A country that has lost its exuberance and its optimism eventually becomes prisoner to a damaged culture.
While we may be momentarily entertained by all the clowning of our political elite, the real peril looms large. Our institutions are failing before our eyes. Our trust in those who profess to lead us has evaporated. We are losing our self-confidence as a nation. Our hopefulness is being severely taxed.
It will be very difficult for a nation to recover from the sad situation we find ourselves in. When a nation has lost its trust in those who govern it, it becomes a nation that simply wanders through historical time. Without exemplary leadership, a people will lose its way. First it loses its vision; then it loses it hope.
No question our people are disillusioned. The satisfaction ratings tell it all.
One survey puts satisfaction ratings for the administration at -15 percent. The next one puts it at -12 percent. That is a statistical confirmation. It is not, as one propagandist claims, an “improvement.”
The onset of stagflation, and the possible slide into recession, will not make the political climate more cheerful. The disillusionment compounds.