‘El Niño, China slowdown to drag growth up to 2017’

THE World Bank is now less optimistic on the growth of the Philippine economy on account of the ill effects of El Niño and the negative impact of China’s slowdown on trade and tourism.

The Washington-based lender decided to cut its economic growth forecast for the Philippines this year until 2017, saying that the 2015 slowdown would persist in the next two years.

“Lower 2015 growth takes into account the relatively weak first-half growth brought about by slow government spending, weak exports and the initial impact of the El Niño phenomenon,” the bank said.

“In contrast, second-half growth is projected to improve as government ramps up spending. Accelerated implementation of public-private partnership projects and the continuing effect of lower food inflation and declining oil prices are expected to support growth,” it added. The World Bank estimated that if agriculture growth contracts by 4 percent, similar to the impact of the 1983 El Niño on the farm sector, GDP growth in 2015 could drop to 5.4 percent, holding other factors constant.

If agriculture growth contracts by 7 percent, similar to the 1998 El Niño, the country’s GDP growth could drop to as low as 5.1 percent this year.

The impact of the El Niño will cause food production to decline, which could cause a spike in food prices. This, in turn, would have a significant impact on
poverty incidence.

“On the domestic side, El Niño is the main threat, not so much on GDP growth per se but on the quality of growth, as tens of millions of farmers’ lives may be affected,” the World Bank said.

“With a fall in farm production, farm prices will inevitably lead to higher inflation, once the currently adequate food inventory is depleted,” it added.

Currently, the low inflation environment brought about by cheap oil prices and adequate food supply is benefiting poor Filipinos.

The World Bank said based on the 2012 Family Income and Expenditure Survey, the average poor household can save around P6,000 annually from lower oil, transport and rice prices. The report added that in 2014, the poor gained P4,400 year-to-date due to low oil prices.

If oil prices fall further as projected and this is completely passed on to consumers, and rice prices stay at their current levels, the poor could save an additional P1,600 for the rest of the year.

“This is money that can be used to increase basic consumption and bring some households out of poverty,” the World Bank said.

Data cited by the World Bank in its report showed that in the 1998 Annual Poverty Indicators Survey, the combined effects of the financial crisis of 1997 and the 1997-1998 episode of El Niño caused the increase in poverty incidence to 31.7 percent in 1998 from 29.1 percent. Further, the El Niño shock alone contributed about 46 percent in the increase in the country’s poverty incidence during the period.

“The key response to El Niño in the immediate term is to ensure adequate food stock, especially through timely importation of rice and other key food items. In the medium term, reforms in food policy are essential,” it added.

University of the Philippines School of Statistics Dean Dennis Mapa recently said in a briefing that poor Filipinos are more sensitive to food prices.

In the first six months, Mapa said inflation experienced by the poor averaged around 2.5 percent to 2.6 percent. Government data showed that it was at 3.1 percent in the first quarter and 2.1 percent in the second quarter.

Mapa explained that the weight of food in the basket of goods used for the computation of the inflation experienced by the poorest 30 percent is 70 percent as against 39 percent for all the households.

China’s impact

Apart from El Niño, the World Bank said the economy will experience slower growth due to the impact of China, particularly on trade and tourism.

China, the World Bank said, accounts for around 13 percent of the country’s total exports. Further, agricultural products account for around $400 million worth of exports.

With this huge share in total export and the amount of agriculture exports to China, the World Bank said there could be some slowdown in the growth of the country’s export revenues, as well as farmer’s incomes.

Apart from exports, the slowdown in the Chinese economy could also negatively affect the tourism earnings of the country, as China is fast becoming a major source of tourists for the Philippines. The World Bank said tourist arrivals from China have grown exponentially to almost half a million in 2014 from only 15, in 2000.

“The key response to slower external demand from China is to improve productivity on the goods side and improve tourism infrastructure and facilities on the services side,” the World Bank said. –Cai Ordinario, Businessmirror