In the last few weeks, quite a number of business friends have asked me about the economic prognosis of the Philippine economy for 2010. November was also the time when we finalized the operating budgets of the different corporations where I am involved, so I have had to formulate and discuss the economic scenarios that are part of our budget assumptions. While nobody can claim a perfect foresight, we try our best to be correct 75 percent of the time or our business plan for the ensuring year will go haywire.
As we had anticipated, the Philippine economy did not go into a recession despite the financial meltdown in the U.S., Europe and some parts of Asia. While we did not grow, as well as China or some of the Latin American countries, our GDP grew by .8 of 1 percent, and GNP by 3.4 percent up to the third quarter of 2009. This is definitely lower than the 2008 GDP growth of 4.8 percent or the 2007 growth rate of 6.7 percent, but better than the negative or recessionary rates of other countries. With just less than a month remaining in the fourth quarter and taking into consideration the Christmas season, it looks like the Philippine economy will grow by 1 percent in GDP terms and 3.8 percent in GNP terms. Considering a population growth rate of 2.3 percent, this is not so good in alleviating poverty, but then we are not in the best of times.
The strong OFW remittance, and the health of our financial system evened out the large drop in export revenues and the weak fiscal condition of the government. Export revenues which was over 60 billion in 2008 will drop by 20 percent, and the government budget deficit for the year will be over P280 billion. The export revenue reduction will be partially offset by the OFW remittance, but the large budget deficit will constrain the government from further pump priming the economy. From the production side, it was the service industry and mining that provided the growth, as the manufacturing sector continued to decline. On the consumption side, private consumption grew by 4 percent fueled by the remittances and a benign inflation, but investments from the government and the private sector was anemic, as foreign direct investments were not coming as in previous years.
Going into 2010, what are the main drivers or factors that will spur the economy? The May election is a major consumption and a minor investment input into the economy and should add at least 1 percent in GDP growth in the first half of the year. The recovering U.S. economy, even if quite slow, will increase our exports and BPO outsourcing revenues, further fueling private consumption and investment. Then the stronger recovery of South Korea and other Asian economies will add export revenues and investments to our economy. OFW remittance will continue to grow even with the Dubai problem and will still be a main pillar of our economy. The winner of the presidential election will also be a major factor to our economic growth. A Noynoy Aquino win, will have the most impact on foreign and domestic investment, as it will be perceived to be the most reform-oriented and will inspire confidence both from local and foreign investors. It will also rekindle the initial years of the Cory Aquino presidency when foreign investments skyrocketed. A Villar win, will be second best as he is viewed as an astute businessman who understands and will be business-friendly. A Gibo win, will be third best as he is too identified with the previous administration and will not earn the trust of business and the people.
Definitely, 2010 will be a better year for the Philippine economy and business. GDP will grow at 3 percent to 5 percent, and GNP at 6 percent to 8 percent, depending on who will be elected president. Services will still continue to provide the major growth, with agriculture and mining providing strong support. Manufacturing will continue to decline as we and most countries cannot compete with China in the manufacture of durable and semi-durable goods, unless there is a raw material comparative advantage that cannot be offset by volume production. As one wit said, “God made the world, but everything else is made in China.”
The year 2009 is not really the worst year in the history of the Philippine economy, but it should have been better with a better government. We survived a lot of major disasters with a more caring people as we shared our resources with the disaster victims and the less fortunate. It was a lesson well learned, that especially in times when the pie or the economy is not getting bigger, we can survive by sharing more of what we have to those who have less.
Merry Christmas and a more prosperous 2010.