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The government has again scaled down its growth forecasts for this year and next. This is like admitting that the US recession is now on or sure to come soon and that the Philippines could not expect to be spared from its debilitating impact despite what some sectors had been saying after seeing that Philippine banks only have limited exposures to the ailing or failing banks in the US.
From a revised 2008 growth projection of 5.5 to 6.4 percent, the interagency Development Budget Coordination Committee (DBCC) now expects growth in the gross domestic product at 4.4 to 4.9 percent, as revealed by Socioeconomic Planning Secretary Ralph Recto. The DBCC similarly lowered its 2009 growth forecast to 4.1 to 5.1 percent from 6.1 to 7.1 percent. But is this all that we could do? What exactly is a forecast that the government could just easily change it whenever things are going the other way?
In economics, a forecast is the prediction of any of the elements of economic activity that can be done either in great detail or general terms. Either way, a forecast describes mainly the expected future behavior of the economy in part or as whole. Correctly made, a forecast is very helpful in policy making or planning, referring to what the government must do in the period covered by the forecast. It is on this score therefore that I asked the question above – Is this all that we could do? – changing our GDP growth forecast in response to what is happening now in the US and the rest of the financial world. What about our plans or the specific policies or programs that we made after the original forecast was made? What changes are being made on them now? And what exactly were these specific policies, programs and projects in the first place, by the way?
I mean, if we change our forecast, we must also change our policies or plans that we made after making the original forecasts. That we still have not heard much from the government? Not only that, if we change our forecast, it also means that the basic assumptions that we take as given when we made the forecast must have also changed now? What were these assumptions and what are the changes that we are making to them now? For example, is the decision now to sell the government’s share of Petron part of the original plan or the new plan? What will it do to the economy?
Usually, an economic forecast is based on some specific theory or understanding on how the economy works. Some theories are simple but others are more complicated that require elaborate knowledge of cause and effect or the interrelationships of the various forces operating within the economic system and those outside it. How integrated is our economic system and how closely is our economy related to the rest of the world? Now, for example, the US Senate already passed its own version of the bailout plan that included tax breaks and the increase in the insurance coverage of bank deposits. The US House of Representatives votes on the same thing this Friday (Saturday here). But even with the go signal from the US Senate and the possibility of the package being approved finally in the House, investors are still skeptical because the main problem is not just about the financial meltdown and the resulting credit crunch but of the economy faltering or going into a recession.
If the US economy goes into a recession, to what extent shall we also suffer from it? Does it warrant the extent of the cut in our growth forecast now made by the government? We did not cut our GDP growth target to 4.4 to 4.9 percent when we saw the economy growing only by 4.6 percent in the first semester? What warrants its downgrade to the new low level now? And why not make it lower than four percent for the whole year? That should be spelled out, if only to know what we should be doing next in response to it.
In the US, this is what is happening now. One report says, “US factory activity shrank in September to its lowest since the 2001 recession. For the rest of the world, including the Philippines, that depends on the US market for their exports. This is also bad. Another report also says, “US auto sales dropped below one million last month for the first time in more than 15 years as some consumers struggled to get financing and others were frightened away from showrooms by bank failures and turmoil on Wall Street,” sending the stocks of Japanese car makers reeling.
As the US factory activity shrank in September to its lowest since the 2001 recession, reports from the US also says that the economy shed more jobs for the third time in four months. It says that US private-sector employers just cut 8,000 jobs in September and this did not include the impact yet of the financial chaos that came recently. There is fear even that the US unemployment rate may increase to seven percent by the middle of 2009.
My worry really is that other than lowering its economic growth forecast, our government has not prepared enough for the coming global economic slowdown.
