Slow down of WV economy seen

By Maricar M. Calubiran

With goods steadily rising due to inflation and oil price hike, the economy of Western Visayas is expected to slow down from 6.0% to 5.3% in 2005.

Senior Economist Winston Padojinog of the University of Asia and the Pacific said the distributive impact of reduction in economic output in agriculture growth in Western Visayas is .20%.

In Iloilo City, however, there is no impact on the agricultural sector since Iloilo is basically not an agricultural area.

The impact of the price hikes in the industry growth in the region is .18% while in Iloilo City, .14%. The reduction in the services growth in WV is .32% while Iloilo City, .56%.

Padojinog added that there would be an erosion of the average household income in the region and in Iloilo City if inflation rate exceeds 7.6%.

He added that the salaried or the fixed-income earners will be the most adversely affected in an inflationary environment.

In the recent economic briefing sponsored by the city government under Mayor Jerry Treñas, Padojinog said inflation rate should be monitored. The household income must grow faster than inflation rate. Higher inflation rates will dampen demand. It will translate to weaker sales and a low tax base.

He said there will be reduction of the consumption of goods if the inflation rate is much higher than the household income. Historical data indicate that a 1% increase in regional economic output increases average income by 1.44%.

The expected increase in household income in pre-crisis is 8.6%. In crisis period, the expected increase in household income is 7.6%. The projected inflation rate in pre-crisis is 6.0% while the projected inflation rate during the crisis period id 7.6% or 8.1%. The net impact of household income in pre-crisis is 2.6%. In the crisis period, the net impact on household income is 0.0% - (.50%).

Padojinog added that not all will feel the pinch of the crisis. Families relying on overseas remittances are a growing segment in the population. In the 2000, FIES records, Western Visayas has 8.89 % share in OFW dependent. Iloilo City has 18.91% share in OFW dependents.

In this time of crisis, Padojinog recommended to let the market determine how the economic agents will react to the price environment. “It has been proven in the past crisis that the players in the economy are forced to become more efficient in the use of resources, highly creative in coming up with new technologies to deal with problems and more philanthropic.

He also urged that lifestyles have to be changed. There should be elimination of consumption of unnecessary and luxury goods, shift of usage to the modern but more efficient durable goods, consider substituting more expensive goods with the less expensive one which also provide the same level of utility and those who have more must share with those who have less.

Firms must also strive to improve productivity. Padojinog said there should be an increased firm productivity by striving to reduce cost, increase value and perhaps to consider exporting or generating foreign exchange abroad.

There should be also diversification of consumer markets. “Consider possibilities of outsourcing logistics, distribution, production, support services and evaluate other alternative but inexpensive sources of inputs and channels for goods and services, ” said Padojinog.