Economic growth from where?

The government has been telling us that the economy is on the way to recovery. The National Economic and Development Authority said that the Philippines is likely to grow within the range of 4.5 percent to 5.4 percent in 2005. This year, Neda says that the Philippine economy is likely to grow within the range of 5.7 percent to 6.3 percent.

And it seems some numbers indeed are showing good signs. The budget deficit has gone down. The stock market seems to be doing fine. Remittances from overseas Filipino workers are rising. They are not spending their money yet but soon, probably starting this summer, they are going to renovate their houses or buy new units. And indeed, real estate business has started to perk up. On January 23, the National Statistics Office (NSO) said that production of factories rose 4 percent in November owing to improved sales. Their average capacity utilization has stayed at 80.3 percent indicating that factories are generally busier. Hey, things are looking up!

I say, easy on those numbers because the truth is that other economic indicators are telling us otherwise. Last week, the NSO released the latest available figures on imports and what see saw was not comforting. In a globalizing world, countries buy goods from abroad—specifically capital goods, raw materials, and intermediate inputs—so they can process them by applying labor, technology, local materials and expertise into products for exports back to world markets. NSO’s import data tells us that in January to November, capital imports were flat, our purchases of intermediate inputs even declined by more than 9 percent. These figures seem to tell us that many business people are not buying more machines or upgrading their plants and equipment. Many of them don’t need to because they are buying less raw and intermediate inputs.

If indeed the economy has started to rev up, business should be borrowing lots of money from banks by now so they could take advantage of the projected economic boom. The latest figures from the Bangko Sentral ng Pilipinas (BSP) seems to indicate that credit activity has been sluggish after peaking at an almost 7 percent growth rate in May last year. In October, the latest figure, the loans outstanding of commercial banks grew only by 1.3 percent. Loans outstanding of important sectors including mining and quarrying; manufacturing; electricity, gas, and water; construction; and wholesale and retail trade even declined in October.

OFW remittances, of course, will probably carry the economy through especially if the $12 billion sent in by workers are converted into purchases of construction materials besides other basic needs like food. Probably.

The official line is that OFW families saved their money in 2005 and are likely to spend them this year in purchases of houses and durable consumer items. Question: if they indeed saved in 2005, why should they start spending in 2006? Our own take is that the spending decisions of OFWs are dampened by declining purchasing power of the peso. Therefore they are probably not inclined to spend more in 2006 especially if political uncertainties continue and the oil prices remain volatile.

Call centers and outsourcing companies of course will continue to grow, albeit at a lower rate owing to difficulties in recruiting skilled labor. We are happy that these sectors have become real options for many of the jobless youth. Nevertheless, outsourcing alone will not spread the benefits of growth beyond the urban centers.

What we are stressing here is that government officials need not crow yet about the possible economic revival this year. The economic indicators are sending us mixed signals at best and there is a need for government to really do something drastic to boost the economy.

Investments are one possible source of growth, yet the policy environment is still hazy due to the continuing uncertainty over the country’s fiscal incentives system. The budget for 2006 has not been passed and we are still at limbo whether or not we could expect significant public investments in economic and social infrastructure that is necessary to catalyze entrepreneurship. The country’s tangle of bureaucratic regulations and conflicting rules, highlighted by the recent World Bank report on the “ease of doing business” worldwide, has been a major barrier to economic expansion. Yet the government has not responded at all to address the problem. A new year supposedly brings in fresh perspectives and new vitality; we are not yet seeing that from the government so far.