PiTiK-testing the economy
Last week brought welcome news on the economy, as the Philippine Statistics Authority reported that our gross domestic product (GDP) in the third quarter grew by 7.6 percent over the same quarter last year. Many argue that growth is not necessarily the best yardstick for assessing the economy’s health, and rightly so. Still, faster GDP growth is generally positive news as it means a more rapid rise in aggregate incomes, which normally comes with expanding jobs. But we can get a fuller picture with my usual “PiTiK” test, by examining presyo, trabaho, and kita (prices, jobs, and incomes) based on the latest data.
Presyo continues to be bad news, with the October inflation rate further rising to 7.7 percent, our highest since 2008 when the year-end inflation rate was 7.8 percent and the full-year average was 8.2 percent. Where are the price jumps mostly coming from? Food has been the primary culprit over the past year, with prices in October having risen by 9.4 percent year-on-year, a significant acceleration from 7.4 percent in September. Rising costs of housing, water, electricity, gas, and other fuels (i.e., energy costs) also kept speeding up, now at a rate of 7.4 percent from just 4.5 percent at the start of the year. These costs are largely beyond our control because the fuels that run our power plants, machines, and vehicles are almost entirely imported, and supply disruptions caused by the Russia-Ukraine war have led to steep price hikes globally.
On the other hand, we could have some control on domestic food price movements through a combination of increased production and eased imports. While the latter is easiest to do, the preferred and more sustainable way for the long term is to boost domestic production by helping farm producers raise their productivity to match the production costs of their overseas counterparts. But blocking the products of the latter via import controls or high import tariffs, which artificially force prices up, makes no sense at a time when the urgent need is to keep prices down for every Filipino, especially the hungry poor. The Bangko Sentral ng Pilipinas (BSP) has voiced frustration that our agriculture authorities keep falling short on their mission, forcing it into using monetary tools that address the demand side of a problem where the supply side is the real culprit.
Meanwhile, latest data on trabaho look good at first blush, with the unemployment rate now down to its pre-pandemic level of 5 percent. But job quality is now the problem, after millions forced by COVID-19 out of quality jobs in manufacturing, transport, and tourism took refuge in informal jobs in agriculture and trading. The higher underemployment rate of 15.4 percent (up from 13 percent in late 2019 prior to the pandemic) means that more workers feel the need for even more work even as they actually have work. Disturbingly, workers with a college education now make up nearly half (45.4 percent) of jobless Filipinos, up from 37.8 percent in October 2019. Workers below 35 years old now make up 69 percent of the unemployed, down from 75.7 percent in October 2019, telling us that older workers have been the bigger victims of the pandemic recession.
Finally, kita has been the best news among the three yardsticks, as our GDP growth numbers seem to be defying common trends elsewhere. The International Monetary Fund projects 4.5 percent growth in emerging and developing Asia where we belong (versus only 3.2 percent for the whole world), already downscaled from their initial figure of 5.9 percent in January. But analysts are revising growth projections for the Philippines in the opposite direction, as we appear well on the way to achieving at least 7 percent full-year GDP growth, on the back of a reviving tourism sector and “revenge” consumer spending.
Can we keep it up? The biggest threat is inflation itself, both here and overseas, because rapidly rising prices dampen demand for goods and services. The world already expects an economic downturn next year because of historically high inflation. That’s why the BSP is right in closely watching presyo, and calling on government to do its part on this.
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