- Philippines in 2008:A Decoupling of Economics and Politics?
The Philippine economy started 2008 on a high note —it had just registered its highest real GDP growth rate in three decades of 7.2 per cent in 2007, which was significantly higher than the 6.1–6.7 per cent target set by the government. This was attributed to spending related to the May elections, which typically bolsters consumption expenditure; government expenditure on infrastructure projects; and personal consumption expenditure, supported by overseas Filipinos' remittances.1 This despite a weakening external environment, particularly as a result of instability in U.S. and global financial markets.
As in previous years of inordinately strong economic performance, the question was whether it could be sustained in 2008 and beyond. But given the domestic factors that drove growth in 2007, and the real fallout from the U.S. and eventual global financial crises, some economic slowdown was to be expected in 2008. The question was how well the Philippine economy would cope with the impending U.S. and global recession.
In contrast, political controversies and disturbances that began in 2007 were carried over into 2008, in addition to those that began in earlier years. The continued strong performance of the economy despite continuing political instability has raised the question of whether economic performance has decoupled from political developments in the Philippines.
The article first discusses economic performance and trends in the Philippines in 2008, followed by a discussion of key political developments that could have had the most negative impact on the economy. [End Page 245]
The Philippine Economy in 2008
Economic Growth and Sectoral Performance
Table 1 shows real GDP growth rate by type of expenditure for 2005–08. The period from 2002 was a period of steady, moderate growth, ranging from 4.4 per cent in 2002 to a high of 7.2 per cent in 2007 for real GDP, and from 4.2 per cent to 8 per cent for real GNP. Real GDP growth slowed down significantly to 4.6 per cent in the first three quarters of 2008, compared to 7.5 per cent during the same period in 2007. However, it has also been argued that weaknesses of the Philippines' national income accounting system are very likely to have led to an overstatement of GDP growth from 2000.2
On the demand side, growth of personal consumption expenditure, which has consistently accounted for almost 80 per cent of real GDP since the early 1990s, slowed down in the first three quarters of 2008 as a result of increasing oil and food prices. On the other hand, the continued strong inflow of overseas Filipino workers' (OFWs) remittances kept consumer spending fairly robust. Because of the significant increase in the number and employment quality of OFWs in the first three quarters of 2008, remittances grew at a higher rate of 17.1 per cent over the same period in 2007. This drove the 19 per cent growth of net factor income from abroad, which in turn contributed to the 5.9 per cent real growth of GNP.
Government consumption expenditure, which accounts for around 7 per cent of real GDP, accelerated in 2006–07 with the disbursement of funds for the government's infrastructure programme, the 2007 elections, and the salary adjustment of government employees. It then declined in the first two quarters of 2008 compared to the same period in 2007. It picked up only in the third quarter due to a significant increase in the maintenance and other operating expenses of the government.
The share of capital formation to GDP has steadily declined from around 22 per cent in 2001 to 18 per cent in 2007. The year 2007 was a banner year for the Philippine economy not just in terms of overall GDP growth, but also in the significant growth of capital formation. But this was driven by real construction expenditures, which grew by over 21 per cent in 2007 and was largely accounted for by public spending. On the other hand, investment in durable equipment grew at a slower rate of 4.5 per cent. In 2008, investment in fixed capital formation in...