Income disparity drags Phl growth

CEBU, Philippines -  While the Philippine economy is seen to remain strong this year, the big challenge though is to translate the economic growth into poverty reduction and employment for the people, an economist said.

“That is actually a very important policy question not just in the Philippines but also in the states and also globally I would say,” Economist Brian Murray reacted when asked how GDP figures of countries around the world trickle down to those who most in need – the poor citizens and jobless ones.

Murray is the group chief economist of Investment Department of AIA Group Limited, the largest independent publicly listed Pan-Asian life insurance group.

Income inequality

Slow poverty reduction “is not a question” of sluggish economic growth but rather of the increasing income inequality among citizens, Murray noted during an economic briefing in Cebu, Friday. The briefing, sponsored by Philam Asset Management Inc., was part of PAMI’s Investor Series: The Philippine Economy and Beyond.

“You know, it’s all about income inequality that is increasing and dragging the economic growth,” Murray, who is responsible for macro-economic research at AIA Group, told reporters on this underlying factor that, contributes to the slow poverty reduction worldwide.

The Philippines and other world countries must take a closer look at how higher growth should translate into reduced income inequality rate and income growth of the people.

Despite higher growth, poverty hardly declined between 2009 and 2012. The National Statistical Coordination Board reported that in December 2013, poverty incidence barely improved from 26.3 percent in 2009 to 25.2 percent in 2012. This suggested that gains from higher growth are not fully benefiting the poor people.

The foreign economist also urged the government and other stakeholders to invest in building more infrastructures that will provide jobs to citizens, adding that education must also be given great importance.

He emphasized that education is the tool especially for the lower-income and middle-income individuals to improve their economic condition.

Teaching financial literacy is one way to help Filipino families prioritize the most important things in their monetary capabilities, said Rolan H. Enriquez of Philam Life, a member of AIA Group Limited.

Through this way, Enriquez, who is vice president of agencies for Visayas and Mindanao, noted Filipinos should be oriented on how to handle monetary resources to improve their lives in the long-term.

“More wealth is being created but the question is how you manage this opportunity?” he asked.

GDP growth

Although the country’s GDP growth at 5.7 percent in the first quarter was lower than expected, strong growth is still expected to continue in the forecast period.

Economist Murray said the forecast growth for the Philippine economy is seen to maintain in its strong momentum at 6.4 percent this year, though slightly compared to 2013’s full year growth of 7.2 percent. “This growth remains balanced between consumption and investment – and not leveraged,” he further added.

Strong performance of private consumption and services and the expansion of investments and manufacturing drove higher economic growth last year. Rehabilitation and reconstruction in areas devastated by super typhoon Yolanda and other natural disasters may have a significant impact on the nation’s economy in late 2014 or next year.   

AIA’s Murray said that looking at the survey that has said investors’ confidence in the nation is increasing should be considered good news for the long-term development.

Positive signs are seen for continued growth in investment; improved business confidence and rising inflows of foreign direct investments will support private investment. For instance, the Philippines’ ranking in the World Bank’s Doing Business survey jumped by 30 places to 108th of 189 economies in 2013.

He however said that there seems to be negative sentiments on “the lack of progress of reconstruction” and building of infrastructures in places hit by the recent disasters.

On the other side, inflation is forecast to pick up this year but remains within the central bank’s target range. Remittance inflows and positive consumer sentiment will benefit private consumption. However, higher inflation and interest rates may likely reduce the pace of growth in consumer spending.

Remittance growth has been persistent since 2008, he said. Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo confirmed remittances have been growing an average of over five percent every year.  (FREEMAN)