A year of mixed results leads to a cautiously optimistic outlook for 2015
First of two parts
THE Philippines.’ economic performance in 2014 was an unusual mix of positive and negative results that defies generalization; whether it was a “good” year or not seems to depend on one’s point of view.
Despite the uncertainty, the results of 2014 have encouraged a cautiously optimistic outlook for 2015, particularly in view of the anticipated economic boost from election spending ahead of the May 2016 national elections, the Philippines’ hosting of the Asia-Pacific Economic Cooperation (APEC) meetings throughout the year, and the upcoming Asean integration, which is expected to take a couple significant steps forward in the coming year.
Unimpressive GDP growth
Perhaps the biggest economic story of the latter half of the year was the unexpected downturn in the country’s GDP growth rate in the third quarter. The economy expanded at a rate of just 5.3 percent compared to 7.0 percent in the same quarter a year earlier, and lower than the 5.6 percent and 6.4 percent growth rates of the first and second quarters of this year. The disappointing third quarter turnout was more than half a percentage point lower than the most pessimistic of local analysts’ estimates prior to the official release of the data, and 1.2 percent lower than the government’s expectations.
Government officials and private analysts alike attributed the slowdown – which, it should be pointed out, was still the second-highest GDP growth rate in the region after China – to a retraction in government spending and a significant slowdown in agricultural output. For his part, Budget Secretary Florencio “Butch” Abad pinned the blame on the Supreme Court’s ruling against the Aquino Administration’s “Disbursement Acceleration Program” (DAP), saying that the ruling had “a chilling effect across the bureaucracy’s expenditure practices.”
The deceleration of the GDP growth rate in the third quarter was, however, much more broad-based. Year-on-year growth slowed in other key areas such as manufacturing (7.2 percent versus 8.9 percent in Q3 2013); electricity, gas and water supply (3.3 percent growth in Q3 2014 compared to 8.4 percent a year earlier); real estate activities (6.2 percent versus 11.6 percent expansion in Q3 2013); and financial intermediation (7.7 percent versus 12.1 percent a year earlier). Export growth slowed as well, growing at 9.8 percent in the third quarter from a 10.5 percent growth rate a year earlier.
Balancing the lower than anticipated GDP growth through 2014 was a moderate improvement in the unemployment rate. At the beginning of the year, the January Labor Force Survey (LFS) put the unemployment rate at 7.5 percent. By the April LFS that had decreased to 7.0 percent; in July, it fell to 6.7 percent. As of the last LFS of the year in October, the unemployment rate stood at 6.0 percent, which may be a historic low; it is the lowest official rate in the timeframe covered by the available data, which begins in 1994.
There are, however, a couple factors that tend to dampen enthusiasm for the apparent progress. Throughout the year, the province of Leyte has been excluded from the LFS, due to difficulties in conducting the survey among the population displaced by Typhoon Yolanda in November 2013. The effect the exclusion has on the overall unemployment percentage may be significant; according to the Philippine Statistical Authority (PSA), about 1.2 million people ordinarily counted as part of the workforce (people age 15 and over) have been left out, a figure that represents about 2 percent of the total national workforce of 64.4 million.
Another factor that may be some cause for concern is the distribution of employment throughout the country. The Philippines’ three most populous regions – CALABARZON, the National Capital Region, and Central Luzon – all had unemployment rates higher than the national average at 7.1 percent, 9.8 percent, and 7.4 percent, respectively, as did the Ilocos Region, which had an unemployment rate of 7.5 percent.
In addition, the official underemployment rate throughout the Philippines increased throughout 2014 after dropping sharply from the 19.5 percent level recorded in January. Although the underemployment rate decreased to 18.2 percent in April, by October it had climbed again to 18.7 percent, significantly higher than the 17.9 percent recorded a year earlier.
Part two of this special report will review the Philippines’ fiscal management under the Aquino Administration in 2014, an area in which the government, while achieving some fundamental success, was unable to shake off persistent controversy.
The economic outlook for 2015 from local experts will also be revealed in part two.