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Second year of slowing growth a wake-up call – IBON

Research group IBON said that the second year of slowing growth under the Duterte administration should be enough to jolt it out of its complacency and denial. The downturn in the last two years and the poor prospects in the year to come should be a wake-up call to start to undertake the difficult but necessary reforms for genuinely inclusive growth and national development.

The Philippine Statistics Authority (PSA) reported a 6.2 percent annual growth in the country’s gross domestic product (GDP) for 2018, lower than government’s revised growth target of 6.5-6.9 percent for the year.

Government cited slowing agriculture and high inflation as among the main factors pulling back growth, while the main drivers were growth in construction, and trade and repair of motor vehicles, motorcycles, personal and household goods.

“Growth is slowing most of all because of the economy’s unsound fundamentals in backward agriculture and shallow industry,” said Sonny Africa, IBON executive director.

The agriculture sector registered just 0.8 percent growth in 2018 from 4 percent in 2017.

This is the sector’s worst performance since its contraction in 2016.

Yet, Africa said, the administration seems to have little interest in reversing this trend.

For example, the Php49.3 billion agriculture department budget for 2019 proposed by Congress is Php1.4 billion less than the Php50.7 billion in 2018 (in equivalent cash-based terms).

Africa also noted that manufacturing growth slowed to 4.9 percent in 2018 from 8.4 percent the year before, which is the slowest since the 4.7 percent growth in 2011.

He said that this is due to weaker demand in domestic consumption and weaker exports amid the global economic slowdown. Manufacturing also remains shallow in being low value-added, foreign-dominated, and dependent on foreign capital and technology.

Africa pointed out that recent rapid growth has instead relied on external short-term factors that are fading. Yet remittances are slowing, exports are falling, and interest rates are rising. The real estate and consumer spending booms are also petering out.

Growth in overseas remittances slowed from 5.0 percent in 2016 to 4.3 percent in 2017 to just 3.1 percent in the first 10 months of 2018, said Africa.

Exports growth increased from 11.6 percent in 2016 to 19.5 percent in 2017, but then fell to 11.5 percent in 2018.

Meanwhile, the benchmark overnight reverse repurchase (RRP) rate rose steeply from 3.0 percent in 2017 to 4.8 percent by end-2018, reversing the decade-long general decline in interest rates.

Africa also said that household consumption spending markedly slowed from 7.1 percent growth in 2016 and 5.9 percent in 2017 to just 5.6 percent in 2018.

The real estate boom is also tapering with 2016 growth of 8.9 percent in real estate, renting and business activities declining to 7.4 perent in 2017 and falling further to just 4.8 percent in 2018.

“Rising government spending and its infrastructure offensive haven’t been enough to offset the reliance on waning external factors,” said Africa. “The administration’s efforts to stimulate growth to its 7-8 percent target with even more spending, are not going to be enough amid high disguised unemployment, low incomes, and the global slowdown this year.”

Global GDP growth is estimated to slow from 3.1 percent in 2018 to 3.0 percent this year.

“The Duterte administration needs to stop downplaying slowing growth and hyping that this as still among the fastest in the region and the world because the growth is becoming more jobless than ever,” Africa said.”

The number of employed only increased by 162,000 from 41 million in 2016 to 41.2 million in 2018, according to data from the Philippine Statistics Authority (PSA).

Average annual job creation was then only 81,000 in the period 2017-2018, which is the lowest level of job creation among post-Marcos administrations.

Africa said that government continues to ignore telltale signs of an economic downturn and deceive Filipinos with its rosy picture of the economy.

He said that the sooner the administration admits the failure of its neoliberal policies, the sooner measures that will spur domestic industries and benefit the Filipino people can be implemented. #

2018 Yearender: Are You High? The Economy Isn’t

by Sonny Africa

Executive Director, IBON Foundation

The Duterte administration’s economic managers made some odd statements as the year wound up. Economic planning secretary Ernesto Pernia said “the Philippine economy became stronger and even more resilient than ever”. Finance secretary Carlos Dominguez III insisted on “the soundness of the Duterte administration’s economic development strategy”. Bangko Sentral ng Pilipinas (BSP) governor Nestor Espenilla meanwhile said that they “expect growth to remain solid in the years ahead”.

These are odd because the economy clearly showed signs of increasing stress in 2018. If anything, the year just passed confirmed the end of the long period of relatively rapid growth for the Philippines.

In denial

Growth has been slowing since the start of the Duterte administration. It is already its slowest in three years. Inflation reached a nine year-high and was even worse for the poorest Filipinos. The current account deficit is at its worst in 18 years. The peso is at its weakest in 13 years. International reserves are in their lowest in 10 years. The jobs crisis is disguised but really at a historic high. Overseas remittances are also slowing — this further dampens household consumption and welfare.

The government seems to think that it can just spend its way out of this. It holds its ‘Build Build Build’ infrastructure offensive as some kind of magic bullet. This will be difficult with the end of the decade of low global and local interest rates and rising borrowing costs. Accelerating government debt will also only become more unmanageable as growth continues to slow. As it is, the budget deficit is already at its worst in seven years.

All these the government’s chief economic propagandists will euphemistically call ‘headwinds’ or ‘challenges’. Yet barring a real change of economic course, there is little reason to expect that the economy will get better anytime soon. Elite business profits will likely continue to grow, but it may just be a matter of time before even these suffer.

As if being near the top of a sinking ship is a good thing, the administration will keep on claiming that the Philippines is among the fastest growing economies in the region and in the world that is caught in a protracted crisis, Still, the 6.3% growth in the first three quarters of 2018 is markedly slower than the 6.7% growth on 2017 and 6.9% in 2016.

Deteriorating

Agriculture is doing particularly badly: its 0.4% growth in the first three quarters of 2018 is approaching its worst performance since 2016. But even the hyped manufacturing resurgence is hitting a wall – the 5.7% growth in the first three quarters is much slower its 8.4% clip in 2017, and the full year results may be the slowest since 2015.

Filipino industry and domestic agriculture would have been solid foundations of domestic demand and production, if only these had really been developed these past years. This is impossible though under the government’s obsolete globalization and free trade mantra. Agriculture is still left to the vagaries of the weather and small peasant labor. Manufacturing remains shallow and foreign-dominated.

The services sector never should have been the driver of economic growth. But even this is failing. The real estate boom appears to be ending with 5.9% growth of finance and real estate in the first three quarters of 2018 continuing the trend of slowing growth from 7.5% in 2017 and 8.5% in 2016. Reflecting weakening household consumption, even trade is down – at just 6.0% in the first three quarters compared to 7.3% in 2017 and 7.6% in 2018.

The main drivers of growth in 2018 have been the intrinsically short-term boost from government spending – this increased to 13.1% growth in the first three quarters from just 7.0% in 2017. , Construction also increased to 13.3% growth in the first three quarters from just 5.3% in 2017.

Real score on jobs twisted

The worst effect of a backward economy is not creating enough decent work for the growing population.

The economic managers hailed 825,000 new jobs created in 2018 and unemployment falling by 140,000 bringing the unemployment rate down to 5.3 percent. Unfortunately, these do not tell the whole story.

The Duterte administration has actually created just an average of 81,000 jobs annually with 43.5 million jobs in 2018 compared to 43.4 million in 2016. This is because the economy lost a huge 663,000 jobs in 2017, which was the biggest contraction in employment in 20 years or since 1997.

So the largest part of the supposed job creation, or some four out of five ‘new’ jobs, was really just restoring jobs lost in 2017.

But how to explain the falling unemployment? This is a statistical quirk. According to the official methodology, jobless Filipinos have to be counted as in the labor force to be counted as unemployed.

It seems that huge numbers of Filipinos are no longer seeking work and dropping out of the labor force. This is reflected in how the labor force participation rate dropped to 60.9% in 2018 which is the lowest in 38 years or since 1980.

While employment grew by just 162,000 between 2016 and 2018, the number of workers not in the labor force grew by a huge 2.9 million over that same period. It is likely that the reported 62,000 fall in the number of unemployed between 2016 and 2018 reflects workers dropping out of the labor force because of tight labor markets rather than their finding new work (because of weak job creation).

This scenario is supported by IBON’s estimates of the real state of unemployment in the country. The government started underestimating unemployment in 2005 when it adopted a stricter definition that made subsequent estimates incomparable with previous figures.

Reverting to the previous definition to give a better idea if the employment situation really is improving or not, IBON estimates that the real unemployment rate in the decade 2008-2017 is some 10.2 percent. This maintains high unemployment in the economy since the onset of globalization policies in the 1980s. IBON does not yet have estimates for 2018, but the real number of unemployed in 2017 was 4.6 million or almost double the officially underreported estimate of just 2.4 million.

Job generation trends in 2018 are in any case worrisome as it is. The quarterly labor force survey showed drastically worsening job generation since the start of the year. Measured year-on-year, some 2.4 million jobs were reported created in January 2018 but this fell to 625,000 in April then 488,000 in July and then 218,000 jobs actually lost, rather than created, in October.

Economy needing rehab

Perhaps high on their own propaganda, the country’s neoliberal economic managers continue to confuse abstract growth figures, business profits and foreign investment with development and the conditions of the people. The reality however is of chronically backward Filipino industry and agriculture and an economy that went sideways in 2018. The real challenge is to discard failed neoliberalism and to replace this with an economics truly serving the people.#

295,000 jobs lost since Duterte assumed office, IBON maintains

Research group IBON stood by its estimates that close to 300,000 jobs were lost since the start of the Duterte administration after Employers’ Confederation of the Philippines (ECOP) honorary chair Sergio Ortiz-Luis said the group’s description of jobs lost is “deceiving”.

Ortiz-Luis reportedly said that it is deceiving to claim that the number of employed decreased by 300,000 just because there is data showing that employment dropped, even if there are new entrants to the labor market.

But Philippine Statistics Authority (PSA) data reports net employment generation, said IBON executive director Sonny Africa. “Net employment generation means employment created net of employment lost,” he explained.

“Ortiz-Luis’ argument about the number of entrants into the labor force is meanwhile puzzling because this is actually irrelevant in the PSA’s measurement of employed Filipinos,” Africa added.

“The number of employed reflects the number of jobs the economy generates, while the labor force measures those who have to compete with each other for whatever jobs the economy generates,” he explained.

PSA figures show that the number of employed fell from 40.954 million in July 2016 to 40.659 million July 2018.

IBON attributed the drop in the number of employed Filipinos to a huge 1.8 million reduction in agricultural employment over the same period.

Job losses and expensive food characterize the crisis in the agricultural sector, the group said.

IBON further said that job creation in the rest of the economy was not enough to compensate for the big agriculture job losses.

Gross job losses counted 2.2 million while gross job creation was only 1.9 million, hence the 295,000 drop in the number of employed.

The biggest job generation is in sectors that do not necessarily indicate a strong economy, IBON said, such as in the public sector and construction.

The group added that net job creation from July 2017 to July 2018 is feeble at 488,000 additional jobs compared to the 701,000 jobs created on average annually in the decade prior to the Duterte administration.

This failed to offset the 783,000 jobs lost in July 2017 from July 2016.

IBON said that Ortiz-Luis joins the administration’s economic managers in being dismissive of the jobs crisis becoming more severe under the Duterte administration.

“They have on the contrary hyped latest employment statistics as the highest among July rounds in the last 10 years, deflecting the issue of massive job losses,” the group said.

“It’s the economic managers that have been deceiving us, apparently Mr. Ortiz-Luis included,” Africa said. #

Jobs crisis intensifying under Duterte – IBON

Research group IBON said that despite recently hyped growth of 6.8 percent in first quarter 2018 the country’s jobs situation continues to worsen under the Rodrigo Duterte administration.

The Philippine Statistics Authority (PSA) reported that the employment rate grew slightly to 94.5 percent in April 2018, while the unemployment rate was lower at 5.5 percent.

The jobs situation seemed to improve as the number of employed Filipinos rose by 625,000 and the number of unemployed declined by 83,000.

The government largely attributed this to increased infrastructure spending.

According to IBON estimates correcting for government underestimation, however, the number of unemployed actually grew by 82,000 to 4.1 million in April 2018 from 4 million in April 2017.

Official unemployment figures do not reflect discouraged workers or those who have dropped out of the labor force after failing to find work after six months.

The agriculture sector, which is the second largest source of employment among the country’s sectors, had the most job losses, said the group.

Official data shows that the number of employed in agriculture fell by 723,000 to 9.8 million in April 2018 from 10.5 million in April 2017.

The sector has been plagued with job losses for the past four consecutive rounds of the labor force survey.

IBON also noted that the agriculture, hunting and forestry subsector lost 558,000 jobs, while fisheries lost 134,000.

The fisheries subsector had notable job losses for all labor force survey rounds under the Duterte government.

Poor quality work or jobs that are insecure, lack benefits and have low wages persists, said the group.

The number of underemployed or those looking for additional work increased by 466,000 from around 6.5 million in April 2017 to 6.9 million in April 2018.

IBON noted that among underemployed persons, those who worked 40 hours and over in a week grew by 758,000 from 2.4 million last year to 3.2 million this year.

The growing underemployment despite the increase in full-time work may indicate that much of reported full-time work still does not give enough income for the employed to meet their basic needs.

The number of part-time workers who worked less than 40 hours in a week decreased but still comprised 52.5 percent of total underemployed in April 2018.

The group also noted that nearly half or 47.1% of underemployed for this round were in the services sector, 32.4 percent in agriculture, and 20.5 percent in the industry sector.

Both services and industry sectors registered increases in underemployed persons from April last year.

IBON said that government has been content with minimal job generation in the non-productive sectors such as the kind offered during job fairs.

According to the group, government should instead ensure sustainable and decent jobs and livelihoods for Filipinos.

This can be done by embarking on a solid economic program that genuinely boosts the agriculture and fisheries sectors and develops the country’s vastly rural economy to build strong and vibrant domestic industries. #