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ECONOMIC PERFORMANCE IN 1998 AND
POLICY MEASURES FOR RECOVERY IN 1999
Presented by
Director-General Felipe M. Medalla
National Economic and Development Authority
Economic Performance in 1998
GNP and GDP growth in 1998. Gross national
product (GNP) grew in 1998 by 0.1 percent which is out of the range we
originally forecasted. Meanwhile, gross domestic product growth was negative
(0.5 percent). The strong growth (12.9%) of net factor incomes from abroad,
which accounts for the difference between GNP and GDP, enabled overall output
to achieve positive growth.
Fourth quarter performance. The preliminary estimates show a
fourth quarter drop in GNP of 1.2 percent; GDP fell by 1.9 percent. The fall
in the 4th quarter GDP is lower than forecasted by some private
sector forecasters and is expected to be the lowest among Asian countries with
negative GDP growth.
Sources of contraction. The GDP contraction in 1998 was
caused by the 6.6% drop in agricultural production, and the decline of
construction and construction-related manufacturing by 9.5 percent. Had
agriculture posted a zero growth, GDP would have risen by 1.1 percent. And had
construction and construction-related manufacturing turned in a similar zero
growth, GDP would have grown by 0.3 percent.
Agriculture. The El Niño dry spell greatly devastated
agriculture in the first three quarters. We initially estimated a slower
decline in the fourth quarter but apparently the typhoons in October and pest
infestations in some areas of the country did more damage. Palay, as
well as other cash crops like coconut and sugarcane all posted double-digit
declines in the fourth quarter. Note, however, that livestock remained strong,
growing by 6.2 percent in the fourth quarter and 4.1 in the whole of 1998.
Industry. Meanwhile, industry was weighed down by the
drop in construction and manufacturing, which contributed 0.5 and 0.3
percentage points, respectively, to the fall in GDP. Both construction and
manufacturing were disadvantaged by the market-unfriendly environment, i.e.,
high interest rates and volatile exchange rate during the early part of 1998.
Food manufacturing remained one of the few bright spots in industry as its
growth in 1998 (3.1 %) is in fact higher than in 1997 (0.8%).
Services. Growth of the services sector remained
steadfast, led primarily by the transportation and communication sectors and
domestic trade. The sector, in fact, accelerated in the fourth quarter vis-à-vis
the third quarter. The telecommunications sub-sector was driven by firm-level
programs to meet roll out commitments.
Consumption. On the demand side, personal spending remained
firm, growing by 3.5 percent, encouraged by the moderate movement in prices.
Government consumption went up slightly by 0.8 percent, as the national
government pursued a P50- billion deficit program.
Despite the improvement in macroeconomic indicators towards the latter part
of 1998, investors remained cautious. Durable equipment shrank by 18.4 percent
as almost all type of equipment, except those for telecommunications,
registered declines. Public construction is the only source of investment
growth. Nonetheless, construction declined by 3.8 percent, compared to its
14.6 percent growth in 1997.
Measures for Recovery
The weak performance of the economy highlights the need to immediately carry
out the measures to ensure recovery in 1999. These policy imperatives include
the following:
Policy reforms to enhance competitiveness and access
to foreign financing. The executive branch will have to work closely
with Congress to speed up passage of laws on banking sector, power sector, and
air quality reforms to hasten the release of the Miyazawa and other program
loans;
Support the recovery of agriculture through
timely seed distribution by PhilRice; building up small irrigation/impounding
facility by the NIA; and timely release and use of budget for rice and corn
programs (P1.6 Bn);
Support for manufacturing and other industries by
speeding up the release of Miyazawa funds for the private sector ($500m);
allowing direct power sales to manufacturing firms, construction,
transportation, telecommunications, power, tourism, other services (schools,
medical services); and
Pump-priming, primarily by speeding up direct
releases of accounts payables to private suppliers and contractors
infrastructure program of NG (P76 Bn)
Stronger export drive by implementing an
action plan for more aggressive measures to promote product and market
diversification in view of a possible US growth slowdown
Prospects for 1999
Signs point to a recovery in 1999. Agriculture
is expected to recover. In the first semester alone, the DA projects palay
production to grow by 47.3 percent and corn by 102.3 percent. This will have
multiplier effects on manufacturing and services.
With regard to prospects for manufacturing,
following declines for nine months in 1998, initial capital investments of
newly registered domestic stock corporations and partnerships with the SEC
turned a hefty 42.1 percent growth in October 1998 due to infusions in
manufacturing, utilities and mining and quarrying.
Finally, government pump-priming activities
are also expected to boost aggregate demand. The national government has
programmed a P68.4 deficit this year.
Concluding Remarks
Overall prospects. If we succeed in
implementing the recovery measures in 1999, GNP is targeted to grow by 3.0-3.7
percent while GDP expands by 2.6-3.2 percent. Agriculture is expected to
rebound by 3.0-3.5 percent. This, in effect, will help in the recovery of
industry , leading to a growth of 2.0-2.4 percent. Manufacturing is seen to
grow by 1.7-2.1 percent. The expansion of services by 3.0-3.8 percent is
likewise expected to continue as trade improves.
Downside risk factors. There are possible
downside factors in the global environment that we have to watch out for.
Among these are the protracted recession in Japan and the lingering question
on the yuan devaluation in view of the slowdown in China’s export growth and
Hong Kong’s recession.
Upside factors. Notwithstanding these
risk factors, the consensus for Asia in general, is that this year will see
the start of recovery. For instance, the IMF’s projection for ASEAN-4 (-2.0
percent for Malaysia, -3.4 percent for Indonesia, 1.0 percent for Thailand,
and 2.5 percent for the Philippines) indicates an improvement from –9.6
percent average GDP growth in 1998 to –1.4 percent in 1999. The continuing
robust growth of the US, albeit at a slower rate than 1998’s 3.9 percent,
will boost this recovery process.
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