ANALYSIS: Signs of an unsustainable economic growth


Posted at Jun 08 2018 07:03 PM

Newly released government data show a few bright spots in the economy but high rates of inflation and industries straining at high capacity usage put sustained robust growth under a cloud.

Volatile global economic conditions—threats of a trade war among the world’s largest economies, along with rising interest rates—will make it further difficult for the Philippines to achieve a decent trade performance. In the first four months of this year, total trade inched up by just 3.4 percent and already the gap between imports and exports widened by 59.3 percent to $12.2 billion.

This weakness is apparently forcing the country’s central bank to use its dollar resources to contain the peso’s decline. From 49.5230 at the end of last year, the peso value against the US dollar has dropped to around 52.50 this week. This is not helped any by the national government’s growing needs to pay for maturing obligations denominated in foreign currencies.

All this is gnawing into the reserves that the country is keeping—foreign currencies, investments in foreign securities, and monetary gold—for use in times of drastic declines in foreign exchange inflows.

Last May, these reserves declined in value to $78.97 billion from the previous month. Nonetheless, at that level the reserves can still pay for more than seven months’ worth of imports and keep its industries operating even if dollar inflows stop, according to the Bangko Sentral ng Pilipinas (BSP). 

Inflation continued to accelerate at a five-year high of 4.6 percent in May, according to the Philippine Statistics Authority (PSA). This pace will likely continue for some time still owing to the peso’s weakness, the impact of add-ons from new taxes now shouldered by businesses and by costlier imported fuel, and more recently a clamor for wage increases—which will contribute to higher production costs that businesses will pass on to consumers over the next few months.

Recent movements in producer prices also point to more increases at the retail level. The rise in value of manufacturing production in April was slightly higher than the rate of output increase, according to findings from a separate survey by the PSA.

Amid the escalating pace of consumer price increases, government officials insist that the new taxes form only a fraction of the inflation rate. The Duterte economic managers have alternatively called consumers complaining about high prices as “crybabies” or urged them to “take out loans” to be able to cope or just be patient because the rate of price increases is bound to stabilize after a few months.


There were slightly over 40.89 million employed as of April, a net increase of 625,000 from the same month last year. And while the number of unemployed declined by 83,000 at 2.36 million individuals, the underemployed—individuals who have jobs but feel they can do more—registered an increase of nearly half a million people to a total of 6.94 million.

More than half (23.07 million) of the employed were in the services sector while another 8.04 million were in industry sector. Agriculture, which contributes the least value to overall economic output, accounted for 9.79 million workers as of April.

There was an increase of 755,000 individuals in services, with the biggest increase of 261,000 registered in “public administration and defense; compulsory social security” activities. Workers in education were fewer by 31,000 and those in accommodation and food services (obviously related to tourism and recreation activities) were 58,000 lower from last year, based on the PSA data.

In the industry sector, there was an increase of 606,000 workers—but 466,000 of them were in the construction activities (earning about ₱512 a day). This could be attributed to the robust property development business and the ambitious infrastructure projects of the government.

Manufacturing, on which hopes of creating more higher-paying quality jobs are pinned, accounted for a work force of 3.65 million in April, an increase of 111,000 from the year-before—which indicates an average of around 9,260 new manufacturing jobs per month.

Employment in agriculture shrank in the year to April. More than 735,000 jobs were lost in the sector, 600,000 of them in agriculture, hunting and forestry activities and another 136,000 in fishing. Nearly half of the jobs lost involved skilled work.

Curiously, there was a reduction of 21,000 managerial jobs although there were more professionals, technicians and associate professionals, clerical support workers, and service and sales workers. 

The PSA data also indicated a slight drop in the number of plant and machine operators and assemblers, which seemingly does not jibe with the reported increase in manufacturing employment and production levels in recent months.

Meanwhile, the volume of manufacturing output, which registered a growth of 31 percent in April compared to the year-before, came amid high levels of capacity usage in most industries. 

More than 61 percent of all industries surveyed were using more than 80 percent of their factory capacity. If domestic demand for manufactured products remains high, the flow of imported goods can only be expected to continue to outpace exports.

Considering the surge in government debt behind recent projects, these statistics project an economy that is far from being a healthy and sustainable one.

Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.