MANY fear economic growth in the Philippines will slow down this year and the next because of higher local inflation and the global market volatilities touched off by the brewing US-China trade war and the Middle East geopolitics. Economic analysts are almost one in saying that the gross domestic product (GDP), while still expanding, will grow at a slower pace and certainly miss the government target range of 7 percent to 8 percent.
Economic fundamentals, though, are keeping the economy afloat. I will not argue about the possible lower GDP expansion in 2018, but I believe election spending next year will provide a boost to the economy, as it always does, and offset the feared “slowdown” in the economy.
Many political parties and their respective candidates for the 12 senatorial posts and local positions are expected to spend and, thus, fuel the economy in the run-up to the May 2019 elections. The election spending will come at a time when the inflation rate appears to be tapering off given the normalizing rice supply situation and amid the less volatile state of global markets.
Election spending is one non-macroeconomic fundamental that has been lifting economic growth in the Philippines. We have seen in the last decade or so that the few years following the elections in the Philippines have resulted in credible economic growth.
A stable political climate has ensued and complimented the robust economic growth in the past. The credibility of the 2016 presidential elections, which President Duterte handily won, inspired confidence among local and foreign businessmen.
We have witnessed how a tame inflation rate tempered interest rates in the first two-and-a-half years of the Duterte administration. The peaceful elections in 2016 and the introduction of automated counting of votes have convinced local and foreign businessmen to place more bets in the Philippines.
This resulted in strong foreign- exchange earnings from exports, increased investments and higher tourism and business-process outsourcing receipts. The economic team of the Duterte administration kept a good fiscal house through a combination of higher revenue collections and increased spending, especially on infrastructure.
US financial group J.P. Morgan, commenting on the run-up to the 2016 presidential elections, said policy changes in the post-election period were remote “given that economic planning is institutionalized, particularly fiscal reforms that were put in place over the last two administrations.”
“The bottom line for this election, in our opinion, is for the electoral process to be completed in a peaceful and credible manner,” J.P. Morgan said.
The Philippines, as proven in the past, has been conducting fair elections, resulting in a stable political climate. It has kept economic fundamentals intact after the election period by continuing the policy reforms of the past administrations and improving on them.
Over and above the peaceful conduct and fair results of the elections, spending by candidates through transportation, meals, paraphernalia and hiring of personnel is sure to power the economy. The government, in addition, will keep spending on big infrastructure projects that, in turn, generate employment.
The volatilities in the global market and the US-China trade war will be a dampener, but our economy will expand as long as the government sticks to the economic fundamentals.
I share the optimism of Economic Planning Secretary Ernesto Pernia about the country’s growth prospects despite the downward adjustments made by the Asian Development Bank and Fitch Solutions Inc.
The ADB reduced its 2018 growth forecast for the Philippines to 6.4 percent, from 6.8 percent, and also revised its 2019 outlook to 6.7 percent. The revision came after Fitch Solutions, a member of the Fitch Group, last month recast its growth outlook for the country down to 6.3 percent from 6.5 percent.
The economy, says Pernia, has been strong, growing by an average of 6.4 percent in the last eight years, the fastest since the mid-1970s, and will continue to expand.
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This piece first came out in Business Mirror on Nov. 6, 2018 under the column “The Entrepreneur.” For comments/feedback e-mail to: mbv.secretariat@gmail.com or visitwww.mannyvillar.com.ph./PN
