Managing Economic Crisis in Southeast Asia

7. The 2008 Global Economic and Financial Crisis: The Philippine Crisis

246 Ruperto P. Majuca and Josef T. Yap 7 The 2008 Global Economic and Financial Crisis: The Philippine Case Ruperto P. Majuca and Josef T. Yap Introduction TheglobalcrisisaffectedthePhilippinesthroughthecountry’s exports (in particular, semiconductor exports) serving as the entry door. Industry (in particular, the manufacturing sector, and to a lesser extent, electricity and gas sector) got hit the most. In the expenditure side, private investments got affected the most, as gross capital formation shrank; private consumption (about 70 per cent of GDP) experienced a temporary slowdown in Q1 of 2009, but rebounded the next quarter. A similar story is mirrored in employment, where the manufacturing employees got affected the most. The impact on domestic employment was felt mostly in terms of the reduction of the rate of new hires and of working hours, more than on retrenchments and lay-offs, except for the manufacturing sector which bore the maximum brunt Global Financial Crisis in the Philippines 247 of the separations. With the possible exception of the stock market, the crisis has had relatively muted impact on the assets markets and the financial sector; likewise, the impact on foreign direct and portfolio investments is not dramatic. Overall, the impact of the crisis on the economy is not as big as that experienced by the advanced industrialized countries, owing to the relatively less open nature of the economy. Green shoots have begun to sprout most likely starting in the second quarter of 2009, but the prospect of recovery was dented somewhat by the two massive storms that devastated the country in September–October 2009. The fiscal and monetary counter-cyclical policy undertaken by the government, although a bit delayed, and the other policy interventions, have helped somewhat to lessen the severity of the crisis and its effects on vulnerable sectors. Impact on the Macroeconomy The Entry Door The spillover effects of the global economic and financial crisis to the Philippine real sector came primarily through the trade channel. Exports contracted an average of 14.3 per cent during the fourth quarter of 2008 to the third quarter of 2009 (see Table 7.1). This is due in large part to the weaker demand for electronics and garments in the international market. Merchandise exports — which accounts for more than 80 per cent of total exports — plummeted by 9.4 per cent, 24.6 per cent, 22.4 per cent, and 14.6 per cent respectively from the fourth quarter of 2008 to the third quarter of 2009. Monthly data also shows that merchandise exports have been 248 Ruperto P. Majuca and Josef T. Yap TablE 7.1 Key Indicators on Philippine Impact of the Global Economic and Financial Crisis, 2008–09 (in per cent) Sector 2008 2009 1Q 2Q 3Q 4Q 1Q 2Q 3Q GDP 3.9 4.2 4.6 2.9 0.6 0.8 0.4 Agriculture 2.8 4.9 2.5 2.9 2.1 0.2 1.4 Industry 2.7 4.0 7.6 5.3 –2.5 –1.7 –5.0 Manufacturing 2.4 6.1 5.4 3.4 –7.6 –7.4 –7.8 Construction –4.3 2.3 20.5 14.5 14.0 14.0 0.9 Electricity, Gas & Water 9.5 6.6 9.2 3.8 0.6 –4.9 –6.3 Electricity & Gas 9.8 6.9 9.8 3.8 0.2 –5.5 –7.0 Services 5.2 4.0 3.3 1.3 2.0 2.7 3.8 O. of Dwellings & R. Estate 7.2 7.5 6.7 1.7 0.7 –2.5 –2.3 Real Estate 21.6 22.7 17.4 –0.4 –4.6 –15.8 –13.8 Personal Consumption 5.1 4.1 4.4 5.0 1.3 5.4 3.2 Government Consumption –0.3 0.0 11.8 2.6 4.5 9.7 8.1 Capital Formation –1.7 13.6 9.4 –13.1 –15.1 –10.3 –12.1 Fixed Capital 3.0 1.7 7.1 0.1 –7.2 –3.9 –0.9 Construction –4.1 1.0 14.3 8.2 6.7 8.9 1.7 Public Construction –10.9 –5.6 23.4 –1.2 11.5 27.7 21.8 Private Construction –0.2 8.6 9.8 15.4 4.3 –10.1 –9.4 Durable Equipment 9.6 3.7 1.0 –7.9 –18.5 –19...