The main reason the Philippine economy is faring better than most other economies in the present global downturn is sustained domestic consumption demand.
During good times, our economy might be faulted for being consumption-led rather than investments-led. In bad times, that characteristic transforms from vice to virtue. From weakness to strength.
While the other economies wither as investments evaporate and foreign markets recede, the Philippine economy is plodding on, sustained by stable domestic demand. The financial volatility, much earlier on, forced the Singaporean economy into a recession — contracting by over 6%. The Euro zone is in recession. The US has been, as is now officially acknowledged, in a recession for a year.
Our consumption-led growth is fueled, as we know, by a steady stream of remittances from our large army of migrant workers. Last September, despite the chaos plaguing the global financial markets, our remittance receipts jumped higher than expected.
All the people jamming the malls since the Christmas shopping season began are, in the main, spending money made in other economies. There is little sign that our retail industry is going to flag this season. There is little sign, as of yet, that demand for affordable housing units catering to OFW incomes, has diminished.
Sure, some of our migrant workers are going to lose their jobs over the next few months. We see some of them trickling back home.
But those shed jobs are not going to constitute a major cut in our overseas deployment nor on the remittance volume the country’s economy depends on. A large portion of our overseas workers are health service professionals who are not likely to see job cuts in their sector. Another large portion are deployed in oil exporting countries that, so far, show no signs of receding.
The worse, it appears, that could happen is for our remittance receipts to remain constant next year. That is good enough, considering what the other economies are going through.
Thanks to the VAT, government is not yet at the end of its fiscal rope. There is enough revenue flow to prevent a runaway deficit. There is enough money to engage the economic downturn with counter-cyclical measures such as sharply greater public spending for infrastructure investments.
Packaged as “Katas ng VAT”, government has been involved in broad-based subsidy programs and direct fund transfers to provide a safety net for our poorest sectors. The package is obviously intended to recover some of the political capital expended to pass a widely opposed but truly timely revenue measure.
Last week, analysts of the Citgroup raised their growth forecast for the Philippine economy this year from 4.1% to 4.3%. That is low by last year’s standards and woefully inadequate to soak up high poverty levels, but the upgrade is a good sign in these bearish times. The forecast growth for next year was likewise raised from 2.7% to 3%.
No one, save those jaundiced members of the Makati Business Club, have forecast a recession for the country.
The basis of the upgraded Citigroup forecast for the Philippine economy is the more aggressive pump-priming effort of the government. The massive infrastructure program programmed for this year started out late, delayed by the exasperating bureaucracy we have, but it has begun to move on and yield its expected positive effects on our over-all growth performance.
Everyone, of course, hopes that we have seen the bottom of the present global financial crisis and the consequent slide into recession of the major economic engines of the world. We are not too sure about that. But it is best to prepare for the worst. We will have to equip our domestic economy to move forward on its own steam if that is what is dictated by global circumstances.
This is how we see the next year: tough but manageable.
The important thing to underscore is that here, as everywhere else, prompt government action is important to mitigate the social costs that the erratic cycles of the global economy invariably inflicts. Government as to be both prompt and effective in the great task of rebalancing our own economy and preparing for the competition ahead.
The global economic downturn will change the terrain that emerging economies will have to master in order to lift their populations from poverty to adequacy. We must understand the features of that new terrain and adjust policies accordingly.
* * *
Today we are celebrating the 90th birth anniversary of one of our underappreciated statesmen: the late senator Raul Manglapus.
Manglapus, for those of us old enough to remember, was at the forefront of the long effort to reform our politics, reimagine our government and redirect the nation’s future. He was a pioneer of the Christian Democratic movement in the country and once defied the odds posed by traditional politics by seeking the presidency in a gallant third-part effort, mobilizing the middle classed, that challenged the grip of the old political oligarchy.
A gathering of friends and family, old comrades and new converts, has been organized for later today at the Escaler Hall of the Ateneo University at Loyola Heights. It is an event to remember the man and rekindle his visions for the nation. The gathering is open to the public and will feature a forum involving some of our leading politicians associated with the political reform effort.
This event is sponsored by the Konrad Adenauer Stiftung, the Centrist Policy Institute which I chair, and the Ateneo School of Government. Do come and join us.