There is much hype around Indian economy and how high its growth has been all these years. There are some others who manage it without much hype.
Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (their central bank) in this speech highlights how Philippines economy has been growing for 20 years:
Let me begin with our growth story thus far in the Philippines. Our economy has experienced uninterrupted growth for over 20 years since 1999 despite challenges such as the 2004 fiscal crisis and the 2007 global financial crisis-that is 81 consecutive quarters of continuous growth, with annual growth averaging 6.4 percent in the past five years (2014-2018).
Growth in recent years has become more broad-based.
On the demand side, private consumption remained robust in the first quarter of 2019, as in the previous quarters through the years. This is further supported by rising contribution from investments from 2010 up to present.
On the supply side, services remain the main driver of growth-but the industry sector has also stepped up in recent years.
Meanwhile, the government’s economic managers remain optimistic about achieving our GDP growth target of 6 to 7 percent this year despite the lower than expected 5.6 percent growth in the first quarter of this 2019.
Private consumption is expected to remain robust, aided by remittance inflows and sustained “cooling” inflation. Private capital formation, on the other hand, should likewise contribute more significantly to economic growth, with construction and investments in durable equipment expected to remain solid in light of the government’s projects and other infrastructure programs.
The International Monetary Fund (IMF), World Bank (WB), and Asian Development Bank (ADB) share these expectations. In fact, all three forecast that the Philippine economy will grow by about 6.2 to 6.5 percent this year.
This has been due to three measures:
The bold reforms and initiatives in the past three years have prompted the government to capitalize on and sustain these gains. It is because of this that we believe the Philippine growth momentum will be sustained moving forward.
First is the government’s ambitious infrastructure program-“Build, Build, Build” which aims to boost the economy’s mobility and connectivity, enabling equitable growth and development. At present, there are 75 high-impact national government infrastructure, with 46 projects (61 percent) already in the implementation stage.
The government is expected to invest over PhP 4.6 trillion (or US$90 billion at PhP52:USD1) in public infrastructure from 2019 to 2022.
Second, is the recent passage of reforms aimed at strengthening our investment climate. The Ease of Doing Business and Efficient Government Service Delivery Act, the revised Corporation Code, and the Philippine Innovation Act support the government’s agenda of improving competitiveness and ease of doing business in the country, promoting transparency and cutting red tape in the government for a more conducive business environment.
At present, the Philippines’ current standing has improved based on different third-party assessors. For instance, the Philippines’ ranking rose from 68th to 56th place under the 2018 Global Competitiveness Report.
It also received an upgrade in its sovereign credit rating from Standard & Poor’s to “BBB+” from “BBB.” These favorable standings are also boosted by the improved business sentiment and the stable consumer outlook based on the BSP’s latest round of expectations surveys.
Finally, the continued demand for Philippine skills locally and abroad are evident in the growth of our BPO industry and strong remittance inflows. This further highlights the importance of our country’s most prized resource-our labor force. Based on our estimates, production efficiency has improved over the years with the incremental capital-output ratio (ICOR) declining steadily. As you know, the higher the ICOR, the less efficient the production process is.
Recognizing the skills of our workforce, the government has invested heavily in various social programs such as the Universal Health Care Act and the Access to Quality Tertiary Education Act (RA No. 10931).
You may not know this but 40% of our budget goes to social services.
He goes on to highlight the role central bank has played and is playing to maintain the momentum.
India and its policymakers make much noise about how growth rates have been higher during their tenure and getting into a lot of mud slinging. They make it look as if India is the only country growing and they are the sole reasons for this growth. Examples from smaller countries such as Philippines tells us none of this is needed really.
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Most economists and central bankers, however, fear that their credibility is at stake, and remain fixated on the need to reach the 2% inflation target. In fact, a few economists even want to raise the target from 2% to 4%. One proposal popular among monetary economists is so-called price-level targeting, whereby the Fed would pledge to achieve future inflation that is one percentage point above the 2% goal for every year that it has already fallen short of that target.
But why should these more ambitious inflation goals be credible or achievable when policymakers have failed to reach even the 2% target? Instead, economists should ask why the standard measures of inflationary expectations, such as professional forecasts, have not risen much in recent years.
Perhaps the public’s expected inflation – a central element of economists’ models for a half-century – does not really exist. Or, to be more precise, it may not be well defined when prices are relatively stable. After all, most people pay little attention to the inflation rate when price growth is as low as it has been in recent years.
In a recent paper, Olivier Coibion, Yuriy Gorodnichenko, Saten Kumar, and Mathieu Pedemonte argue that households and firms generally do not have well-informed expectations of future inflation, and often do not know what the inflation rate has been in the recent past. Large policy-change announcements in the US, the United Kingdom, and the eurozone, the authors argue, seem to have only limited effects on the inflation expectations of households and firms. (In a separate paper, two of the authors argue that reading news coverage of the Fed’s Federal Open Market Committee meetings has little effect on American households’ inflation expectations.)
They point out that US households’ expected inflation rate has averaged around 3.5% since the early 2000s – well above the actual rate or professional forecasts. In addition, when they asked hundreds of top executives for their US consumer inflation forecasts over the next 12 months, some 55% said they did not know. Among those who offered an inflation forecast, the average, 3.7%, was again too high.
Moreover, studies in Germany, other eurozone countries, and New Zealand indicate that the public’s inflation expectations are similarly off-target elsewhere. At the same time, the authors say, some standard surveys of the public’s inflation expectations can produce misleadingly reasonable forecasts by “priming” respondents beforehand with a set of choices.
Former Fed Chair Alan Greenspan once defined price stability as “that state in which expected changes in the general price level do not effectively alter business and household decisions” – in other words, inflation is low enough that people don’t think about it in their daily lives. In today’s environment, therefore, policymakers should not be too concerned if the average person does not have well-informed inflation expectations.
Why, then, should central bankers keep banging their heads against the wall of a desired inflation rate? To be sure, monetary authorities should be transparent about their expectations for long-run inflation, as well as for real GDP growth and unemployment. Rather than doubling down on their oft-missed 2% target, however, perhaps the Fed and and other central banks should quietly stop pursuing it aggressively.