Headwinds on the Philippine economy

In the past four weeks, all of the 2019 GDP/economy growth forecast of the Philippines were downgraded to less than 6% by analysts/economists of the major Philippine and foreign banks. The consensus 2019 growth rates are in the 5.5% to 5.7% range. The Asian Development Bank and the World Bank also came up with the same lower GDP growth projection with the possibility of a higher growth of 6% in 2020. These are still good economic growth rates and would put the Philippine economy in the top three economies in the Asia-Pacific region after Vietnam and China, even if these are lower than the growth rates in 2017 and 2018.

The major reasons for the lower projected growth rates are; the US-China trade war which will affect trade volumes, the delayed Philippine government budget in 2019 and possibly for 2020, slow implementation of infrastructure projects, and lesser foreign direct investments. This will affect both the supply and demand side of the economy. The investment component in the supply side will be lower as public and private capital investments are delayed or postponed, reducing production output in goods and services. On the demand side, the lower purchasing power will translate to lower consumption, even if foreign inward remittances by OFWs and BPOs earnings hold steady.

It is consoling that most of the analysts/economist made little mention of political issues that may be negative to the Philippine economic growth story, considering the political problems of Hong Kong, Bolivia, Chile, Lebanon, Iraq and many other countries that are wreaking havoc on their economies. The Philippines is not immune to these instability issues but our democratic institutions may hold and the government’s intentions may prevent these from happening.

Political issues that may trigger political instability in the Philippines could be the declaration of Marcos by the Supreme Court as the elected vice president which will not be accepted by the people. The Philippine business associations have already voiced out their opinion on the delayed resolution of this issue as economically damaging, and the main and social media are buzzing on this. Another trigger would be the health issues of the president which is shrouded in secrecy even as visible signs and the president’s own admission point to a problem. A possible power grab outside of the Constitution is not impossible which will derail the economy. The president has 30 months to go on his term and political realignments can be expected in anticipation of the next administration, especially with tactical issues of the Metro Manila traffic problem, the impact of rice import liberalization on the farmers and the consumers, the failure of the drug war, police corruption, teachers’ salary demands, controversial political appointments, and other current political/economic issues. Then, there are the repercussions of the existing Philippine-China relations and Chinese loans and investments in the country which have negative ecological and financial consequences. And the intentionally sidelined Chinese incursion on the Philippine territories in the South China sea, which cannot be perpetually avoided now that Vietnam has officially and physically confronted China in their territorial waters. These are the political headwinds that may cut the Philippine economic growth rate by 2% to 3% and will have lasting effects to 2020 and beyond.

Surely, senior government functionaries are aware of these economically damaging political issues and may have already studied and calculated options with the cost/benefit analysis of each option to the administration and to the people. Surely, these analysis and options are relayed and discussed with the powers that be, for them to make the right decisions for the good of the country and the people. All economics are eventually political economics.