This time it’s faster

The latest issue of the World Bank’s (WB) Global Economic Prospects said that more than four years after the global financial crisis came in 2008 to 2009, high-income countries still struggle to restructure their economies and regain fiscal sustainability. As a group, they grew only by 1.3 percent in 2012, down by 0.3 percentage points from 1.6 percent in 2011.

With the developing countries also growing only by 5.1 percent last year after being weighed down by the inability of the high-income countries to import more from them, there was also no way for the global economic output to go but to slow down, that is, from 2.7 percent in 2011 to 2.3 percent in 2012.

The WB noted that the main risks to the global economy this year are still similar to those of a year ago but the likelihood that they will materialize has diminished, as has the magnitude of estimated impacts should these events occur. However, some problems still remain like the loss of access to capital markets by vulnerable Euro Area countries, lack of agreement on U.S. fiscal policy and the debt ceiling, and commodity price shocks.

For the developing countries which are now growing at 1 percent to 2 percent lower than the pre-crisis level, the WB says that to regain their pre-crisis growth rates, they will need to focus on productivity-enhancing domestic policies rather than demand stimulus and avoid pro-cyclical policies and to rebuild macroeconomic buffers so that authorities can react in the case of new external or domestic shocks.

Given the risks, the WB projects the high income countries to only grow by 1.3 percent this year and by 2.0 percent and 2.3 percent, respectively, in 2014 and 2015. As in the past four years, the WB believes that developing economies will continue to drive global economic growth but not at the rate it achieved before. The Bank projects that they will grow only by 5.5 percent this year and by 5.7 percent and 5.8 percent, respectively, in 2014 and 2015. This would allow only the global economy to move up by 2.4 percent this year and by 3.1 percent in 2014 and 3.3 percent in 2015. Before the crisis the global economy was growing by 4 to 5 percent annually.

Up to June last year, the WB had not been very optimistic about the Philippine economy despite its being part of the fast growing region in Asia. It could see the Philippines growing only by 4.0 percent in 2012 and by another 5.0 percent annually in 2013 and 2014. The Philippine economic team was more optimistic; it saw the Philippines growing at between 5 to 6 percent. Which was correct?

Both were proven wrong when in the first three quarters of 2012 alone, the economy already registered an average of 6.5 percent growth in GDP, with another 6.0 percent or more also expected to be registered in the last quarter once the National Statistical Coordination Board will announce the fourth quarter performance of the economy by the end of this month.

What was wrong in both forecast and what is right now in the Philippines? Was the Philippines only lucky last year as might sometimes happen to anyone in the casino or was is it due to something else that we do not know?

Unlike in the casino, there is no such thing as luck when it comes to the performance of the economy. What was wrong in the two forecasts was that they underestimated the difference the new President made to the Philippine growth equation with his mission to fight corruption and ineptness in government. Right now there is more faith in the Philippine government under the new President and in the ability of the Philippine economy to deliver.

Now the World Bank sees the Philippines growing at 6.0 percent last year and to accelerate to 6.2 percent this year and further to 6.4 percent in 2014 and 6.3 percent in 2015. The Philippines is no longer a laggard in Asia.

Let me warn though that anything could still happen here and outside the country that might derail our quest for faster growth. This coming election might be dirty again and discourage investors or another war might erupt in the Middle East that can send the prices of oil products much higher and cause the global economy to sink again.

Another thing is that growing faster this time does not mean that we would soon equal or surpass our neighbors in terms of development. Our per capita income is just about US$2,000 now. Thailand which is the next country above us has about double or US$4,000 in per capita income. Assuming that we grow at 7 percent, which Noynoy promised to achieve when he first came into office, even if Thailand will not grow, it will take us 10 to 11 years to equal Thailand’s per capita income. But Thailand is not stagnating. The WB estimates that it grew by 4.7 percent last year with growth also projected at 5.0 percent this year, followed by 4.5 percent in 2014 and another 5.0 in 2015. What we can do is only to prevent another country in Asia to overtake us, like Vietnam which grew faster than us in the last 10 years.

Did I miss something? Yes!

Pit Senyor to all! Happy Santo Niño Fiesta! To our visitors, welcome all to Cebu!