...the state of Philippine economy

The PHL economy is better than you think


Business Mirror Editorial 
13 October 2019

"Don’t believe all the negatives about the Philippines. Much needs to be done to make our economy better, but we are still on the right path." - Capital Economics

A nation’s economy is highly complex and even complicated. Understanding the data requires putting it all in context and analyzing the implications. As they say, the devil is in the details.

Unfortunately, many of the self-proclaimed “thought leaders” are either ignorant, or intellectually dishonest in order to, perhaps, serve a political agenda.

We are often compared to our regional neighbors that are allegedly doing a much better economic job and we should follow their example.

The Philippine current account—the net difference between outflow and inflow—is talked about frequently. While the Philippines recorded a current-account surplus of $566 million in June 2019, this is only the second surplus in the past 12 months. On the other hand, one of our neighbors recorded a surplus of $4 billion in August, and has run a surplus  in 11 months of the past year.

And, this is not the only area of lesser numbers from the Philippines. The best we could do was show the Philippines’s trade deficit narrowed to $2.41 billion in August 2019, while still showing 12 months of consecutive deficits. Our neighbor shows a trade balance of $2.05 billion surplus in August.

The neighbor’s annual inflation rate fell to 0.32 percent in September 2019 from 0.52 percent in August. Ours fell to 0.9 percent in September 2019 from 1.7 percent in the previous month. Our base interest rate is 4 percent. Our neighbor’s is 1.5 percent.

The Philippine peso has appreciated against the US dollar by 1.4 percent in 2019. Our rival’s currency is up by 5.9 percent. The Philippine stock market index is basically flat for the year as against a 4-percent increase for our neighbor’s stock market.

Maybe the critics are correct that we are doing it all wrong in the Philippines. Our money flow is worse. Our interest rates are high. Our trade balance is in a deficit. Our currency is not appreciating like the others.

Except for one factor that tells an entirely different story and paints a completely different picture that some choose to ignore.

Thailand’s economy expanded 0.6 percent quarter-on-quarter in the three months to June 2019. The Philippines gross domestic product advanced 1.4 percent quarter-on-quarter in the three months to June of 2019. Thailand’s GDP grew by 2.3 percent year-on-year in the second quarter of 2019. The Philippine economy expanded 5.5 percent year-on-year for the same period.

London-based economic research consultancy firm Capital Economics explains what the thought leaders are missing about the strength of the Thai baht and the country’s Current Account surplus, and why the Thai economy is not growing. “The continued strength of the Thai baht is mainly the result of the country’s huge current account surplus, which, in turn, reflects a very weak domestic economy that has been operating at below potential for a number of years.”

The situation is so critical that Capital says that “policy-makers may also soon start to consider the introduction of capital controls.” Don’t believe all the negatives about the Philippines. Much needs to be done to make our economy better, but we are still on the right path.