ON Thursday, the International Monetary Fund (IMF) lowered its growth forecast for the Philippine economy from 6.7 percent to 6.2 percent, citing the slower-than-expected start to the year and weakening global demand.
The less positive outlook was widely anticipated, as the IMF had announced it was reviewing its analysis after GDP growth in the first quarter checked in at a disappointing 5.2 percent annual rate. The IMF now joins the World Bank, major ratings firms Moody’s and Standard and Poor’s, and numerous banks – just about everyone, in fact, except for the ever-optimistic Aquino government – in lowering its expectations for 2015.
As if to validate the IMF’s revision, on Friday a raft of weak economic data was released by the government. Foreign direct investment (FDI) – which in this country largely consists of foreign purchases of company stocks or bonds – plummeted 43 percent year-on-year in April. Manufacturing output declined in both volume and value in May; the value of production, arguably the more important of the two measures, dropped by 7.1 percent, reversing an 11-percent gain of a year earlier, and accelerating the retraction in production from the 5.6 percent decline in April. Following the shrinkage in manufacturing, exports declined as well, dropping a shocking 17.4 percent in May, hitting a three-and-a-half year low.
The government’s rationalizing of the declining indicators inspires absolutely no confidence that the present administration is capable of arresting the slide, or even aware that it should at least be attempting to do so. It is disingenuous to point toward ‘a slowing global economy,’ or ‘a slowdown in China,’ or ‘uncertainty over the Greek crisis’ as excuses for what is now clearly an economy that is rapidly decelerating, while highlighting the supposed strengths of “the low inflation environment, lower oil prices, continued inflow of remittances, expected strong demand from government expenditures, and the brisk business activity in the nearing election season,” as NEDA did – again – in explaining away the worrisome manufacturing data.
Yes, investors might be positioning to benefit from an anticipated interest rate hike in the US, shifting money out of the Philippines. But if investors really believed that the Philippine economy would “pick up” later in the year for the reasons mentioned by the NEDA, they would be putting their money into Filipino companies, and FDI would not be contracting.
While outside influences – Greece, China, perhaps the possibility of higher US interest rates later in the year – do play a role in investors’ and businesses’ planning, decisions whether to invest or expand businesses here are still fundamentally based on the perceived merits of the Philippine economy. The recent indicators suggest that the general outlook now is that whatever impact global uncertainty has, the Philippine economy will not be a star performer and a good place to seek returns.
The Aquino Administration cannot continue to shrug off the economic downturn with vague promises of a better performance later. The rhetoric is not working, and will only become more unbelievable as the skid continues. Instead, the government ought to focus on finding initiatives to visibly boost domestic demand.