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In Partial Fulfilment of the Requirements in BUSE 1

A Research of Philippine Economy and the Economy of other Nations

Submitted by:
Avanzado, Natasha C.
Acuram, Cherish Joy
Butaslac, Paul Renzo
Magarro, Carra

Submitted to:
Sir Wilson Capundag Bation
Chapter 1


The country has a vibrant economy, which is the world’s 10th fastest growing economy in
the world in 2017. That’s according to the World Bank’s latest edition of Global Economic
Prospects. For 2017, Philippines’ economy is expected to advance between 6.5 to 7.5 percent.
That’s almost twice the country’s long-term growth.

GDP Annual Growth Rate in Philippines averaged 3.68 percent from 1982 until 2017,
reaching an all-time high of 12.40 percent in the fourth quarter of 1988 and a record low of -11.10
percent in the first quarter of 1985, according to

The Philippines economy has benefited from a stable macroeconomic environment of low
inflation and low debt to GDP ratio, which has helped sustain a healthy domestic demand
growth; and from a revival of the Asian Pacific region that have boosted exports, which account
for close to a third of GDP. Exports from the Philippines rose 12.1 percent from a year earlier to
USD 4.81 billion in April of 2017.

The economy remains on a firm footing, underpinned by solid macro fundamentals and an
improvement in the external environment. Exports expanded at a double-digit rate for the fifth
consecutive month in May, strongly benefiting from rising demand from the country’s main Asian
trading partners, with the widening trade deficit mainly reflecting higher imports of capital
equipment, which bodes well for the ongoing diversification of the economy. Moreover, the latest
PMI readings confirm that the external sector is gradually supplementing domestic demand in
driving the economy. The government is also supporting growth through an ambitious capital
spending plan, and data for the first five months of the year show that infrastructure expenditure
grew more than 8% in annual terms, a testament to the government’s efforts to fill infrastructure
gaps. On a less positive note, the country is experiencing a slight weakening in FDI growth,
probably in part as a result of the Fed’s tightening cycle.

Economic freedom in Japan is buttressed by political stability and a well-maintained rule

of law. Overcoming entrenched economic stagnation, however, will require serious efforts at
reform that challenge long-established economic and cultural interests. A large public debt, the
highest in the developed world as a percentage of GDP, has taken a toll on private-sector economic
activity, preventing more dynamic growth.

Disparities in productivity between different segments of the economy have continued to

widen. Although its export-oriented economy has long benefited from global trade, Japan still
maintains nontariff barriers that raise domestic prices and hurt overall efficiency. Japan also has
lagged behind other countries in pursuing bilateral trade agreements, in part because of its
unwillingness to expose certain sectors to foreign competition.

Trade is moderately important to Japan’s economy; the value of exports and imports taken
together equals 37 percent of GDP. The average applied tariff rate is 1.2 percent. Many agricultural
imports are restricted, and foreign investment in some sectors of the economy is screened by the
government. The financial sector is competitive, but state involvement persists. Banks are well
capitalized, and the share of nonperforming loans is low.

While the economy continues to sail along, some clouds have started to emerge in recent
months. Wage growth remains limited, constraining a sustained recovery in domestic demand and
failing to boost inflation expectations. Moreover, machinery orders—a leading indicator for capital
expenditure—contracted for the second consecutive month in May, indicating weak investment in
the near future. While exports continued to expand robustly in June, the recent surge in imports
suggests that the contribution from the external sector to overall growth may have declined in Q2.
In the political arena, Prime Minister Shinzo Abe suffered a severe defeat in the election of
Tokyo’s metropolitan parliament. While his leadership has not yet been called into question, the
result signals voters’ growing disaffection with the ruling Liberal Democratic Party (LDP) and
threatens the prospects for Abe’s reelection as the party leader in 2018.
The Philippines has a place in Japan’s plan because of the following reasons/factors:
1. The Philippine interest in sending nurses and/or care-givers to Japan responds to one of
the suggested solutions to the problems of increasing number of senior citizens: to allow entry of
foreign nurses. 2. If Filipino nurses/care-givers learn Nihongo so that they can communicate with
Japanese senior citizens, this will fit nicely in Japan’s cultural aim of spreading the use of Nihongo.
3. Even if Filipino nurses do not learn Nihongo, as long as they can speak good English, this would
still fit in Japan’s goal of further internationalization by inviting foreign investors, professors, and
students. The foreign community, which, it is hoped, would increase in number, would need
English speaking nurses.
4. It has been stressed, however, that Filipino nurses/care-givers’ qualifications should meet
Japanese high standard.
5. Filipino expertise in IT also fits in Japan’s goal of improving its IT. Japan would rather get
Filipino IT professionals and professionals in other fields, rather than other Southeast Asian
6. Neither Japan nor the Philippines expects much improvement in trade relations and increase of
Japanese investments in the Philippines, because majority of Japanese companies in the
Philippines are in the economic zones, where they enjoy many privileges even without an FTA.
7. Even for some companies in the economic zones, however, there are areas of improvement.
Some of them are mentioned in a survey done by the JCCI Tokyo. If the Philippines, however,
desires to improve its export of agricultural products to Japan through the proposed JPEPA, it
might face a tough negotiating process with the Japanese government.
Even though the JMOFA, the JMETI, and majority of Japanese intellectuals have
expressed openness on liberalizing the Japanese agricultural sector, the JMAFF has remained
adamantly against it. The conclusion of JSEPA without FTA on agricultural items and the
difficulty being faced by Korea and Mexico in having Japan include agricultural items in the
proposed FTAs with them indicate that in the rivalry between the JMOFA and JMETI on one side
and the JMAFF on the other, the latter has been winning. In fact, it seems to have scored another
victory in the recent Cancun Conference, where it sent a delegation larger than the delegations sent
by JMOFA and JMETI. The Cancun Conference broke down in the face of the continued
protectionist stand of developed countries.

Spain’s economy has experienced a notable rebound facilitated by structural reforms.

Ongoing efforts have focused on reducing the inefficient and oversized government sector and
reforming the labor market. Top income tax rates on individuals and corporations have been
lowered as well.

Spain’s ongoing economic recovery, however, remains highly vulnerable to challenges

related to ensuring fiscal stability and restoring the financial sector’s competitiveness. Despite
relatively sound economic institutions and transparent regulatory and judicial systems, the
indebted public sector is still a drag on overall economic dynamism. A lack of progress in fiscal
consolidation has resulted in a high level of public debt that is close to the size of the economy.

Trade is important to Spain’s economy; the value of exports and imports taken together
equals 64 percent of GDP. The average applied tariff rate is 1.5 percent. In general, foreign and
domestic investors are treated equally under the law, and most sectors of the economy are open to
foreign investment. The financial sector continues to improve its overall conditions, with the
banking sector regaining stability. The share of nonperforming loans remains high.

The economy seems to have rounded off another quarter of strong growth in Q2. Household
spending likely benefited from strong employment growth through the quarter, with Social
Security affiliations logging another month of strong job creation in June and employment growth
in the manufacturing sector only easing slightly in June from May’s 19-year high. Similarly,
industrial output expanded at the fastest pace in nine months in May and the Composite PMI
reached a near two-year high in June. The external sector fared equally well, with exports recording
strong growth rates despite the slowdown of activity in the UK and labor disputes among Spanish
dockworkers. The continued improvement in the external sector was partially the result of double-
digit growth in tourist arrivals through May.
As of 2013, trade exchanges between Philippine and Spain reached $590 million, according
to the Spanish Agency for International Development Cooperation (AECID) website.

Spain has also donated around 28 million Euros in humanitarian aid for those affected by natural
disasters since 2007.
In October 2012, Philippines and Spain signed the following five agreements that aim to boost
bilateral relations of both countries in the fields of sports, culture, and education.
 Agreement of Collaboration on the Mutual Recognition of Higher Education Studies and
Academic Programs between the Commission on Higher Education (CHED) of the
Philippines and the Ministry of Education, Culture and Sports of Spain;
 Memorandum of Understanding for the Improvement and Promotion of Spanish
Language and Culture Teaching between the Department of Education (DepEd) and the
Spanish Ministry of Education, Culture and Sport, the Cervantes Institute, and the
Spanish Agency for International Cooperation for Development;
 Sports Cooperation Programme between the Philippine Sports Commission and the High
Council for Sport of Spain;
 Agreement of Collaboration between the Technical Education and Skills Development
Authority (TESDA) and the Ministry of Education, Culture and Sport of the Kingdom of
Spain, the Cervantes Institute, the Spanish Agency for International Cooperation for
Development; and
 Agreement of Collaboration between the Philippine Normal University (PNU) and the
Ministry of Education, Culture and Sport of Spain, the Cervantes Institute, the Spanish
Agency for International Cooperation for Development for the development of the
promotion, teaching and learning of the Spanish language in the Philippines

In a visit to the Philippines by Spanish Minister of Foreign Affairs and Cooperation, José Manuel
García-Margallo in March 2014, another five bilateral agreements were signed or stamped:
 A cooperation agreement on combating transnational crime;
 The report of the sixth meeting of the Joint Committee Commission for Technical
Cooperation, with the Country Partnership Framework with the Philippines 2014-2017;
 A memorandum of understanding with the Philippine Statistical Authority on verification
of documents for use in consular proceedings;
 The Cooperation Plan of the Ministry of Education, Culture and Sport with Ateneo de
Manila University for increasing the number of Hispanic studies students by offering
additional conversation programmes;
 Another equivalent agreement with the University of the Philippines.
There are more than 33,000 Filipinos in Spain, majority of them, about 21,000, are permanent
residents, according to the December 2012 figures of the Commission on Filipinos Overseas.
Chapter 2
Rice Scarcity in the Philippines

Agriculture Secretary Emmanuel Piñol last week said Duterte ordered him
to stop the importation of rice to protect the country’s farmers.

One of the reasons why the country is currently suffering a rice shortage is due to Rice
Import Suspension. According to Richmond Mercurio of the Philippine Star Newspaper;
The Foundation for Economic Freedom (FEF) is warning of “significant shortages” and “increased
rice prices” in the country following President Duterte’s recent order to suspend rice importation.
The FEF called on President Duterte to reverse his decision to stop all rice importation as
the group cited its adverse effects on the country.
Agriculture Secretary Emmanuel Piñol said Duterte ordered him to stop the importation of rice to
protect the country’s farmers.
“Stopping all rice importation is a dangerous policy that could lead to significant shortages
and increased rice prices. The country is not self-sufficient in rice production. Stopping rice
imports even during rice harvest season will put upward pressure on rice prices and lead to
significant hikes, worsening hunger and poverty in the country,” the FEF said.
Rice self-sufficiency, the group said, is neither a desirable, nor a practical objective for the
Philippines given its archipelagic nature and because it does not have vast lands and giant river
systems like Vietnam and Thailand which enable them to plant and harvest rice several times a
“Instead, the Philippines should rely on international trade to guarantee food security, just
as Malaysia and Singapore have done. Furthermore, the country can forge a rice security pact with
fellow ASEAN members, such as Vietnam and Thailand, to guarantee rice supply in the
Philippines in case of global shortage,” the FEF said.
The group pointed out that allowing only the National Food Authority (NFA) to import
rice is the wrong policy, saying the “government is a poor judge of the timing of rice imports.”
“We believe that neither allowing the NFA to solely import rice, nor stopping all rice
imports, is good for the Filipino consumer or the Filipino rice farmer,” the FEF said.
“Typhoons can hit the country at any time and destroy rice crops. Neither is the government
equipped to respond quickly to a rice shortage given its bureaucratic procedures. A delay in
importing rice will lead to considerable spikes in rice prices and make rice more unaffordable to
the poor,” the group said.
Instead of having the NFA maintain its monopoly on rice importation, the FEF urges the
government to liberalize rice imports.
By doing so, the group said the government would not incur debt to finance the importation.
The FEF said decisions to import are best left to the market since it is in the interest of
suppliers to import at the lowest possible price and in an amount that would not lead to an
“We, thus, call on the Duterte administration to remove the NFA monopoly on rice
importation and liberalize the rice trade. We support the tariffication of rice imports and the use of
tariff revenues to help rice farmers to either shift production to higher-value crops or increase
productivity,” the FEF said.
“We believe that rice import liberalization will lead to lower rice prices, lower consumer
inflation, and higher disposable income for the working class. It will make manufacturing more
competitive since rice, which is the single biggest source of calories for workers, will become more
affordable,” it added.
The FEF, an advocacy organization for free market reforms, well-defined and secure
property rights, consumer welfare and good governance, counts among its members former and
present cabinet secretaries and undersecretaries, as well as those from the business and finance
National Food Authority (NFA) halts rice distribution in Bicol markets due
to stock shortage.

Edna Reyes-De Guzman, NFA Region V assistant regional manager said, “As far as NFA
rice is concerned, I would like to inform you that for the whole Bicol region what we have in our
warehouses is only good for three days,”
Asked why they decided to halt the distribution of rice to public markets, she said: “Our
main concern is food security. We are reserving it. Just in case (we) will experience calamity,
praying it won’t happen, we have something to give (evacuees) during the conduct of relief
operations.” She said the daily consumption requirement of Bicolanos is averaging almost 40,000
sacks of rice. De Guzman admitted that the buffer stock for Bicol is not enough and could only
last for three days with about more than 100,000 sacks of rice available. On the other hand, she
said consumers need not worry because the price of NFA rice in the market remains stable.
Consumers can also directly buy from their rolling stores positioned at NFA warehouses. At
Legazpi City public market, where NFA rice is no longer displayed, some retailers are affected
due to its lack of supply.
Jean Empig, an NFA retailer, said she is hoping that the supply of NFA rice would
normalize soon since there are a lot of customers patronizing the NFA rice.
“Many of them are complaining. Maybe because they can’t afford to buy the commercial
rice which is quite costly compared to NFA rice,” she said.
Potato Chips Scarcity in Japan

Many consumers have begun panic buying potato chips at

Tokyo supermarkets.
Japan has been suffering potato chips shortage reaching its crisis point. Poor harvest,
import restrictions compound misery for consumers.
According to Mitsuru Obe (Nikkei staff writer), Japan's potato chip shortage is rapidly
developing into a crisis, with consumers rushing to stock up on what little is left in supermarkets
and manufacturers struggling to find fresh supplies.
Dwindling stocks at snack makers are the immediate cause of the crisis after a poor harvest of
autumn potatoes in Japan's northern island of Hokkaido. Spring potatoes are not due to arrive until
late May.
Chips require a particular type of potato that is different from regular table varieties and
retains color when cooked. For many in Japan, there is a certain sense of deja vu. In 2014 and
2015, the country was hit by a shortage of another basic food item -- butter -- due to
falling milk production, also in Hokkaido. The shortage intensified as confectioners increased
production in the run up to Christmas, leaving little available for consumers.
Both crises have brought the country's trade policies into focus. Japan's agricultural products
market is a relatively closed shop for many products, including butter and potatoes.
Tokyo frequently voices concern about the protectionism espoused by the Trump
administration, but, when it comes to agriculture, there may be an element of the pot calling the
kettle black. The two largest potato chip makers in Japan -- Calbee and Koike-ya -- stopped selling
many varieties in early April and say they do not know when they can resume. Snack makers do
import potatoes, but the problem is the difficulty of importing fresh potatoes under Japan's onerous
quarantine system. The government argues that the dirt on fresh potatoes could carry pests and
pose a risk to Japanese farms.
Imports of fresh potatoes only began in 2006, under pressure from the U.S., a major potato
It is not just potatoes that are in short supply. At Calbee's plant in Hiroshima, where snacks
are made with American potatoes, there are not enough workers to keep production running at the
level required to meet demand.
In Hokkaido, few farmers want to grow potatoes, which they say require seven times more
care than wheat. Growing potatoes is also a labor intensive process that many of Hokkaido's aging
farmers shun. But the shortage has already caught the attention of U.S. farmers, and it may not be
too long before we see a tweet or two regarding Idaho potatoes.

Akira Matsumoto, chairman and chief executive of Calbee Inc., speaks during an interview
with Reuters at the company headquarters in Tokyo, Japan January 15,
2016. (REUTERS/Toru Hanai)

According to FoxNews, Japan has been suffering dire potato chip shortage, in which some
bags are selling for $14.
A compromised crop of potatoes on Japan’s north island of Hokkaido has forced one the
country’s largest chip manufacturers to halt production of some of its most popular flavors. Now
the country is facing a drastic shortage of the snack, with prices of some bags soaring as high as
1500 yen, or about $14.
An unprecedented series of typhoons last summer battered Hokkaido – a key spud-
producing region – and decimated the island’s potato crop, which has led to a nationwide scarcity
of the tasty tuber. Now Calbee, Japan's largest snack food manufacturer, has been forced to halt
the sale of 15 types of chips.
“We’re doing everything we can to resume sales again,” Rie Makuuchi, a spokeswoman for
Tokyo-based Calbee, told Bloomberg.
Makuuchi added that Calbee was mulling over importing potatoes from the U.S. and has
already pleaded with potato farmers in the southern island of Kyushu to harvest their crop earlier
than scheduled. Japan, however, has strict regulatory hurdles that limit the amount of imported
potatoes that can be used in products. Makuuchi added that this regulatory hurdle has exacerbated
the shortage.
Photos posted on social media show shelves at supermarkets and local grocers devoid of
chips and reports have surfaced that bags of Calbee’s pizza-flavored chips are selling for between
1,250 and 1,500 yen ($12 to $14) on Yahoo Japan Corp.’s auction website. The bags normally
retail for around 130 yen-- less than $1.20.
Besides the online auctions, a thriving black market chip trade has cropped up in areas
most affected by the shortage.
In Tokyo’s Akihabara district, reports have surfaced of a man hocking bags of pizza-
flavored chips for around 800 yen and store owners are attempting to dissuade hoarders and
resellers with signs that read, “Limit one bag per customer.”
While not all brands and flavors have been as hard hit by the potato shortage, the spud
scarcity has deeply affected Calbee’s bottom-line, which reported a 3 percent drop in its stock on
Japan’s Nikkei and competitor, Koike-ya, saw its stock drop 8 percent following a similar
In the land that produces such high-end culinary delicacies like sushi, shabu-shabu and
yakitori, it may seem strange that a potato chip shortage has been deemed a national crisis-- but
this classic snack food is an even bigger deal in Japan than it is in the United States.
Even rice crackers and Pocky sticks take a backseat to chips in Japan, where a recent TV
Asahi poll of 10,000 people found that Calbee’s chips were the first and second most popular snack
in the country – an issue that warranted a primetime television special of more than two hours.
If there is one upside to the chip crisis, it's that people in Japan have come to terms with
how dependent they've become on their favorite crunchy snack.

Japan is in the midst of a dire crisps shortage after violent typhoons wiped out potato crops in top
tuber producing Hokkaido. The unprecedented series of storms last year has forced chipmakers
Calbee and rival Koikeya to halt production of some of their most popular flavours -- including
pizza and French salad.

According to CNBC, Japanese supermarkets, manufacturers and consumers are snapping

up all the potato and chips they can find as a poor harvest from the country's top potato producing
region hits fresh supplies, the Nikkei Asian Review reported on Monday.
The northern island of Hokkaido is Japan's top potato producing region, accounting for 80
percent of Japan's potatoes, but bad weather last summer has hit potato arrivals. Spring potatoes
will only reach markets in late May, Nikkei added.
Although snack makers do import fresh potatoes, stringent Japanese government
regulations on quarantine makes the task challenging, Nikkei noted. Potato chip makers require
potatoes that are different from table varieties.
Vegetable Scarcity in Spain

Bad weather has caused big shortages of courgettes, aubergines, all salad leaves,
cucumbers, celery, peppers, tomatoes and broccoli.

Snow across Spanish farming areas means tomato, lettuce, pepper and celery shortage -
and higher prices - may last into spring.
British shoppers have been told that shortages of courgettes, aubergines and many salad
ingredients, including lettuce and celery, will continue until spring –and that if they manage to
find stock in their local supermarket they can expect to pay substantially higher prices.
The lion’s share of fresh vegetables we eat in winter comes from Murcia and Valencia in
southern Spain, but the regions’ crops have been hit by flooding, frost and now snow. One
supplier said Lorries transporting vegetables already in short supply to the UK had been stuck in
snow this week. Courgette prices have risen four-fold in the past two weeks.
“Southern Spain is the bread basket for Europe in the winter,” said Anthony Gardiner of G’s, a
major supermarket fresh food supplier. “The whole of southern Europe has been hit hard and
supply is absolutely challenging across a number of salad, fruit and vegetable lines.
That’s likely to continue until the beginning of May when the first British crops are
Heavy rains in mid-December ruined half the Christmas lettuce harvest in Murcia, and
the rains have been followed by frost and snow, the first snowfall many residents can remember
since the early 80s.
Spanish government figures show the price of a kilo of aubergines surging 132% between
8 January and 15 January. Courgette prices were up by 60% and some tomatoes by 45% over the
same period. Spain’s largest farming association, Asaja, says the average price of a kilo of
courgettes in Almería rose by €1.10 (95p) to hit €4.02 between the first and second week of
January, with increases also recorded in aubergines, cucumbers, peppers and beans.
“Right now, it’s vegetables that are being most affected by the weather all along the
eastern coast – Valencia, Murcia and Almería,” said Asaja spokeswoman Estrella Larrazabal,
adding that producers growing cucumbers, peppers, artichokes, courgettes and green beans under
plastic were also beginning to report damage.
Nick Matthews, a regional director at Total Produce, one of world’s largest fresh produce
suppliers, said it was receiving only 20 to 30% of its usual volume of courgette and aubergines.
“It’s quite unprecedented and I’ve been in this business for 28 years,” he said. “You tend
to get one or two products affected by the weather but we are seeing shortages of courgettes,
aubergines, all salad leaves, cucumbers, celery, peppers, tomatoes and broccoli.”
New year health kicks create a surge in demand for greens, and Matthews said dieters looking
for an alternative to courgettes to whizz through their spiraliser could try carrots, celeriac or even
Suppliers are concerned that Spanish farmers may not be able recover the situation,
because the bad weather has also damaged young plants and prevented fresh crops being sown.
The disruption means gaps on supermarket shelves are expected to continue as importers
scramble to tap supplies from further afield.
“The inclement weather in Greece, Italy and southern France means any contingency
sourcing has also been wiped out,” said one senior industry source.
“That means people are now looking further afield to import produce, notably from
America – which given the devaluation of pound versus the dollar and the increase in airfreight
charges – means this will be very expensive for UK consumers and prices will rise on the shelf
or there will be gaps on the shelf.”
Snow covers a field of broccoli in Caravaca de la Cruz, in Murcia province. Juan Antonio Luján’s seven-
hectare courgette farm has escaped relatively unscathed by the cold weather. Cold weather in Spain and Italy
caused a vegetable shortage.

The primary reason why Spain had suffered vegetable shortage is of snow, in which
Spanish farmers hoped the worst is over. Cold snap forces up some vegetable prices by more than
double in past week alone. Solace for some Murcia farmers, tragedy for others.
Anyone trying to stock their kitchen full of vegetables may have noticed a shortage of their
favorite greens or salad items. Some supermarkets had problems stocking courgettes and spinach,
while iceberg lettuce is being rationed by some chains. Retailers have blamed empty shelves on
bad weather in Spain and Italy.
A combination of flooding, cold weather and poor light levels in southern Europe is said
to have created the "perfect storm" of poor growing conditions.
During the winter months, Spain's south-eastern Murcia region supplies 80% of Europe's
fresh produce. But after suffering its heaviest rainfall in 30 years, only 30% of Murcia's growing
fields are useable. This has coincided with a cold snap in Italy, which normally exports vegetables
at this time of the year but is now having to import them.
The effects of shortages are particularly pronounced in Britain, which imports an estimated 50%
of its vegetables and 90% of its fruit. The Grocer magazine's fresh and chilled foods editor, Kevin
White, told the BBC he could not recall the weather affecting supplies so severely.
Courgettes and spinach supplies have been severely affected by the cold weather.
Jordi Vorderman, UK sales manager at Dutch vegetable supplier Valstar Holland, said courgette
prices were the worst affected, but that "the cost of everything imported from Spain and Italy is
sky-high at the moment".
Philippe Binard, of Freshfel Europe which represents the fresh produce industry, said the
problems afflicting vegetable production were unprecedented and had left the yield of courgettes,
aubergines, tomatoes, broccoli and peppers from Spain down by about 25%. Iceberg lettuces and
cabbages have also been affected, with experts unsure where the shortages could fall next.
Fruit and vegetable wholesaler Nick Padley told BBC News that more than 90% of
Europe's iceberg lettuce came from one small region in south-east Spain. He said: "There's a gap
of about six weeks on iceberg lettuce, nothing is coming from Spain for six to eight weeks. Our
supplier is now going to be bringing in iceberg from America which is obviously costing more.
It's a tough time."
Michael Goodwin said: "I've been in this trade for 40-odd years and I've never known it so
bad, where everything is so dear. I've got plenty of English parsnips, potatoes and carrots but
foreign produce is like gold."
At New Covent Garden market, vegetable seller Mark Gregory said: "Whereas normally
courgettes are £6 or £7 [a crate], they're now 20-22 quid and we're struggling to get them."We
usually have a couple of pallets full of them, this morning we've got just 80 boxes." He is awaiting
delivery of a lorry load of courgettes which should have arrived on Wednesday but will not be in
the UK until Friday.
Mr Vorderman said some supermarkets were not prepared to buy courgettes at such high
prices and would rather leave their shelves empty.
Tessa Knowles, who goes to Italy each week buying fruit and vegetables for a wholesaler,
said: "Prices have rocketed. The cold weather has devastated their crops out there. It's also affected
the upcoming fruit on trees so we may still feel the longer-term effects."
Supermarkets can chase the sun to get seasonal produce all year round, but the rest of
Europe will also be looking for new sources for their produce - all of which could push up prices
even further. Wholesalers have told the BBC they know of customers who have cleared
supermarket shelves to try to supply restaurants and caterers.

Chapter 3


Spain is located in the south-western corner of Europe. It has an area that covers over half
a million km² and a population of about 47 million people. More than 60 million people visit Spain
every year, many of them Europeans, who reside for long periods of time. In 2015, the country’s
population decreased by 0.16 %, an ongoing trend that began in 2012 and is the result of a negative
migration balance that has not been offset by a positive natural increase. However, the pace of
population decline has slowed down over the last year.

From the point of view of activity and according to the Labour Force Survey (LFS) data
from the third quarter of 2015, the over 16s now total 38.49 million and almost 60 % of them are
considered as belonging to the active population, which has shrunk over the last year, due in
particular to a decrease in the foreign workforce, increased emigration and despondency in the
search for employment.

Spain, which is the fourth largest economy in the euro area, the fifth in the European Union
and the thirteenth in the world in terms of nominal GDP, was experiencing a gradual improvement
in its economy in 2014 as compared to 2013. Therefore, the Bank of Spain has forecast a GDP
growth rate of 3.1 % and 2.7 % for 2015 and 2016 respectively. According to the Spanish
government’s projections, 554 000 jobs will be created in 2015. Likewise, the total number of
people in employment will be 18 171 000 people by the end of the year, 602 000 more than in the
fourth quarter of 2014 (year-on-year rate of 3.4 %) and over a million more than in the last quarter
of 2013. Meanwhile the unemployment rate will be 19.7 % in 2016, against 21.2 % in the third
quarter of 2015.

In terms of employment, Spain’s business structure is characterised by a high

fragmentation into small business units, to the extent that eight out of ten companies have two or
fewer employees. The highest percentages of small businesses are in the Services sector,
particularly Trade. Conversely, the majority of large companies are in Industry. This characteristic
is complemented by a significant number of large companies with a strong international presence
in sectors related to infrastructure development, renewable energy, tourism, banking, insurance,
textile industry, healthcare technology, aeronautics, the agri-food sector and the automotive

The number of active companies increased by 2.2 % in 2014, bucking the trend after six
consecutive years of decline. This increase was concentrated in the Services sector, in which there
was an increase of 3.9 %, while the number of construction companies decreased by 0.5 % and
industrial companies decreased by 1.4 %. The creation and disappearance of companies shows
great dynamism, since only 15 % actually existed 20 or more years ago and 19.7 % have been
operational as economically active units for less than 2 years. Most industrial companies are long-
standing companies and the presence of recent companies is higher in the Services sector,
particularly in the restaurant and the hotel industry.

In line with the economy as a whole, the Spanish labour market has experienced some
improvement, bucking the trend of job losses prevalent since the beginning of the crisis. This
situation is reflected in the Labour Force Survey which indicates a rise in jobs and an increase in
the employment rate in the third quarter. Furthermore, the number of unemployed persons
decreased by more than 570 000 in a year, although the unemployment rate is still the second
highest in the European Union.

According to information from the National Public Employment Service’s Jobs

Observatory, this trend was also confirmed in the registered employment indicators. The number
of unemployed persons registered with the public employment services in September of this year
was 4.09 million, a reduction of nearly 8 % in one year, while the workers in active employment
registered with the Social Security system rose by 3.06 % to 17.07 million. Recruitment has also
improved greatly with an increase of 10.49 %.

Foreign workers registered with the Social Security system now total slightly over 1.6
million, and their number rose by 4.06 % in 2015 after six consecutive years of decline. The most
numerous workers from other EU countries are from Romania, Italy, the UK and Bulgaria, while
workers from Morocco, China, Ecuador and Bolivia are the most numerous from outside the EU.

While there have been improvements, the Spanish labour market is still showing signs of
serious structural problems: the high rates of unemployment among young people and the over-
50s, the high percentage of long-term unemployed, the high rate of temporary jobs, the low level
of (accredited) employment-oriented training and the high number of discouraged youths who
neither work nor study. (“Spain is located in the south-western corner of Europe,” 2016)

Immigrants’ employment status has worsened during the Great Recession in Spain. How
much of this worsening is due to the recession, and how much to a composition effect? Using
Spanish Labor Force Survey data from 2000 through 2011, we compare the employment
trajectories of different cohorts of immigrants and natives and find that those who arrived before
the 2008 recession had little trouble finding work immediately. In contrast, those who arrived after
2008 struggled to find work as Spanish unemployment rates skyrocketed. In addition, although
many immigrants who arrived in Spain between 2000 and 2007 were able to find work and
eventually move out of the low-skilled positions, the nature of their jobs did not shield them from
the recession. Hence, many became unemployed as the economy shed low- and middle-skilled
jobs in sectors dominated by immigrants. Immigrants’ individual characteristics, such as gender,
country of origin, or educational level, had a limited effect on their employment trajectories. These
findings suggest that for many workers, finding middle-skilled work alone isn’t enough. Hence,
integration policies could aim to help workers transition from the secondary to the primary labor
market in order to find their way into more stable employment. (Nollenberger, 2016)



Trimly dressed deliverymen, polite and punctual, are ubiquitous in Japan. So it was
shocking to see one of them kicking his parcels and hurling his trolley outside a block of Tokyo
flats after apparently finding no one at home. Captured on a camera phone last December, this
incident of “parcel rage” went viral, forcing Sagawa Express, one of Japan’s biggest delivery
companies, to say sorry to its customers. Many Japanese will have felt sympathy, though, for the
video’s frazzled star.
Over 10% of the country’s firms admit that some workers frequently put in more than 100
hours of overtime in a month. A manager at a nuclear plant in Fukui prefecture worked twice that
long in February 2016 before killing himself two months later. The problem is especially acute in
low-skilled service industries. Over the past two decades, e-commerce has vastly increased the
number of parcels handled by firms like Sagawa. Last year, one employee committed suicide after
being violently bullied by his boss.

In a survey in 2015 by the Japan Institute of Labour Policy and Training, some workers
blamed their own lack of ability for why they put in so many extra hours. Others dutifully replied
that overtime was necessary to achieve satisfactory results. But the two most common responses
were straightforward economics: lack of staff and extreme fluctuations in demand.

Both of these forces are leaving their mark on Japan’s labour market. The number of people
of working age (15-64 years old) has fallen by about 3.8m since December 2012, when Shinzo
Abe, Japan’s prime minister, returned to power. But the number of people actually working has
increased by 2.2m. Almost everybody seeking a job has one: unemployment fell to just 2.8% in
February, the lowest rate since 1994. Demographic decline has collided with an upswing in labour

This combination should be highly inflationary. Scarce workers should be demanding

higher wages, forcing firms to charge their customers higher prices. But pay and prices remain
subdued. In their negotiations with employers, Japan’s labour unions have shown none of the
aggression that the Sagawa delivery man inflicted on his parcels. Although base pay (excluding
bonuses and overtime) has stopped falling in the past two years, it increased by only 0.2% in 2016.
That has left inflation well below the 2% target pursued by the Bank of Japan (BoJ).

Japan’s wages remain flat partly because strong demand has resulted in an increase in the
supply of labour rather than its price. Japan now hosts more than 1m foreign workers, up from
680,000 in late 2012. More importantly, the number of women and elderly men in work has
increased by more than 2m over that period. Some of these extra hands have been pushed into
work by financial anxieties. But others are pulled by economic opportunity. Mr Akira, who guides
traffic with an illuminated baton outside a Burger King in Tokyo, is one of the latter. Aged 73, he
prefers to stay physically active by earning money from a job rather than paying money to a gym.
With the extra yen, he can afford to take his wife on bus trips to hot springs in Nikko and Kusatsu.

The rising share of part-timers in Japan’s workforce has also dragged down average pay
gains. The aggregate compensation of all employees combined (which reflects employment gains
and pay gains) increased by 2.3% in nominal terms last year, the fastest rate this century

Market forces do not affect large swathes of Japan’s workforce. The pay of full-time
workers in big firms is not responsive to labour-market tightness, according to a study published
by the BoJ. These beneficiaries of life-time employment do not fear layoffs in hard times and
cannot expect pay rises in good. But these workers do demand higher pay to offset past inflation.
So, if peripheral workers’ pay rises by enough to lift consumer prices a little, that will eventually
result in stronger core wages, adding to inflationary momentum.

To attract and retain workers, some firms are offering perks other than pay. They are
allowing employees to settle in one place, rather than yanking them from one branch to another at
short notice. The government is also encouraging people to clock off at 3pm on the last Friday of
each month (so-called “Premium Friday”). Many unions are also bargaining for shorter
workweeks. Last month Rengo, Japan’s leading union federation, reached a deal with the country’s
largest business lobby to limit overtime to less than 100 hours a month in “busy” periods (and 45
hours at other times). The cap may be enshrined in legislation due later this year.

Obstacles to a shorter workweek remain. An online survey suggested that fewer than 4%
of Tokyo workers left work early on the first “Premium Friday” at the end of February. Legal
overtime limits will also be hard to enforce. Matsuri Takahashi, a 24-year-old employee at Dentsu,
an advertising company, leapt from the third floor of her dorm on Christmas Day 2015. She had
put in more than 100 hours of overtime in a month, but her managers had encouraged her to fake
her timesheets.

Any new legislation might, however, send a signal that the old ways will no longer work,
says Toko Shirakawa, a journalist who sat on a council appointed by the government to propose
workplace reforms. Some parcel-delivery companies have reached the same conclusion. Yamato
Transport, which runs a door-to-door service, said last month that it is slashing overtime and
raising basic charges for the first time in 27 years. It is also setting up thousands of lockers at
places like train stations where deliverymen can leave parcels if no one is at home. That should
spare employees the hassle of a repeat visit, and save their packages from a good kicking. (“Japan's
labour market is tight. So why aren’t wages rising?,” 2017)



The Philippines is widely acknowledged, within Asia, as having one of the most advanced
labor codes in the Region, affording worker protection and the right to organize. This basic law is
supported by institutional mechanisms and institutions designed to promote best practice in labor
market governance.

The fundamental story of the Philippine labor market is of a labor force growing faster than
the economy can create jobs. Its sub-plots are in the statistics within a total population of around
90 million, 56.8 million are aged 15 years old and over. About 36 million are in the labor force,
21.9 (61.3 percent) million are men, 13.8 (38.7 percent) million are women, and over 11.8 million
are between 15-30 years old.33.3 million are employed, 2.8 million unemployed, and 7.3 million
underemployed.17.7 million are wage and salary workers, 10.4 million self-employed, 1.4 million
employers, and 3.7 million unpaid family workers.10.8 million (over 30 percent) of the employed
are laborers and low-skilled workers. 5.9 million more work as farmers, forestry workers and
fishermen. Of the unemployed, 1.4 million (51 percent) are from 15 to 24 years old and over 2
million are between 15-30 years of age.

Greater participation of young workers in the labor force can yield a demographic dividend
if their skills can be put to productive use and active labor market measures to promote continuous
skills upgrading are in place.

Given high youth unemployment, and without adequate social protection, the young can
become a demographic burden both in the short and the long run. Women remain under-
represented in the Labor force, with just over 52 percent of those 15 years old or over participating.
Overseas employment is in many ways a boon, but the “brain drain” issue should not be ignored.

By internal measures and external perceptions, employment and decent work challenges
remains more compelling than ever. The Philippine Labor Index (PLI), a tool designed to measure
progress in achieving decent work goals identifies specific labor market gaps. The index measures
availability and acceptability of work in terms of opportunities for work and freedom of choice of

The other dimensions pertaining to decency or quality of employment are expressed in

terms of productive work, equity in work, security at work, and representation at work. The
Philippines is also ranked in the lower middle range of international competitiveness by both the
Global Competitiveness Index (GCI) and the Doing Business Index (DBI).

While it has been argued that the GCI and DBI are more in the nature of perception indices,
what cannot be ignored is that by external standards the competitiveness position of the Philippines
is weak relative to other countries. This undermines its efforts to attract investments and to create

“Endo, or contractualization.” Contractualization as we know it today evolved as a means

of simplifying hiring arrangements for enterprises. To some extent, the complex rules and
regulations governing labor market policies created incentives for some enterprises to resort to the
contractualization of labor.

A peculiar context in which the labor contractualization has come under criticism, the
contracts of employment for the worker would end before six months are reached, hence the name,
“endo” or end of contract.

The immediate culprit for this peculiarity is a provision in the Labor Code: employees who
have worked for six months within an enterprise are required to be regularized. As a reform, the
six months provision could be replaced by a longer period of transition toward “regularization.”
(But this requires amendment of the law).

“To end ‘endo’.” The marching order to end the contractualization is not an easy task to
undertake. The problem of endo involves three parties in general: the enterprise that uses the labor;
the labor service supplier who hires and supplies the the labor; and the laborers who are hired.

Under the current setup, as contractualization has developed, the company using the labor
is not the direct hirer of the worker. The enterprise in need of labor services uses the labor service
provider to hire workers.

In short, the productive enterprise deals only with the labor provider in terms of the hiring.
By using the labor service provider, the productive enterprise develops no direct employer-
employee relationship with the worker.

In the course of years, high labor standards have been adopted: labor protection provisions
include regulated working hours and overtime pay, holiday benefits, protection from firing, 13th
month pay, sometimes, cost-of-living allowances. There are also benefits related to pension (social
security); housing finance (Pag-Ibig); and health care (PhilHealth).

To top this, there is the highest component of labor cost, the wage. In reality, this is partly
determined by the minimum wage. Since the late 1980s, the minimum wage has been determined
on the basis of regional minimum wages applicable in the respective regions of the country.
Despite this, the Manila minimum wage sets the anchor for all the regional wages.
Philippine labor costs have become relatively high. Thus, Philippine labor has become less
competitive compared to some developing countries in the ASEAN region.

Many labor intensive operations that used to be located in the country have moved to other
countries out of the volition of wrong labor policies: in the 1980-90s, to China, before; to Vietnam,
and now to Cambodia. In the early 1980s, the movement of labor-intensive operations from
investment operations went to Thailand and Indonesia.

Such labor costs have encouraged the practice of contractualization. Contractualization

helped to reduce the cost of labor because temporary workers are not entitled to all the privileges
associated with the benefits accorded to regular employees. But this has unsettled the skill growth
and steady employment of the Filipino worker. Also, there are cost savings associated with

However, such high cost is not commensurate with the fact that there is an enormous supply
of labor seeking jobs at low wages. Poverty and lack of skills of many such workers also implies
that their productivity often cannot match the high cost of mandated minimum wages. Factor in
the various forms of benefits that employers are required for regular employees, then the gap in
wage and productivity got even wider.

This applied to companies that are in export industry which require a high degree of labor.
Contractualization is also commonly used by enterprises operating and selling their products in
the domestic market.

A termination of endo will raise the cost of labor per unit since many of those affected are
likely to be non-regular employees. These workers will benefit from an increase in income. The
hiring enterprise will assume more of the mobilization costs in hiring labor that was once provided
by the labor service contractor.

Definitely, a fall in employment arising from the termination of endo will come about.
Some companies will reduce their operations due to higher costs. Also, some workers will no
longer be hired. The negative impact will be severe for those losing their jobs.

“Need to reform labor market policies.” But the government wants to create employment,
not unemployment!
In order to avoid the consequences just enumerated, it is essential to tilt the outcome toward
employment creation. Some correction of policies would be needed to neutralize the impact of
ending endo.

It is a paradox, but it is true. Measures that appear to be modest in terms of labor policy
will allow us the greatest flexibility in achieving more development and improve the welfare of
labor. This is borne out by the experience of many countries in our neighborhood.

The proposal of labor groups to raise the minimum wage and to make it national in scope
will defeat the program, and even worsen the impact of endo termination. Their proposal to
increase the minimum wage by P125 and to make it into a national minimum wage will defeat the
economic reforms of the government.

The current regional minimum wage rate system is better than returning to the national
minimum wage. The regional wage-setting process adds the element of competition in wages
among different regions of the country and will facilitate growth of poorer regions.
Chapter 4

The Philippines is a Southeast Asian Country in the Western Pacific, comprising more than
7,000 islands. Its capital, Manila, is famous for its waterfront promenade and centuries-old
Chinatown, Binondo. Intramuros, a walled city in the colonial times, is the heart of Old Manila.
The Philippines’ location on the Pacific Ring of Fire and close to the equator makes the
Philippines prone to earthquakes and typhoons, but also endows it with abundant natural resources
and some of the world's greatest biodiversity. The Philippines has an area of 300,000 square
kilometers (115,831 sq mi), and a population of approximately 100 million. It is the eighth-most
populated country in Asia and the 12th most populated country in the world. As of 2013,
approximately 10 million additional Filipinos lived overseas, comprising one of the world's largest
diasporas. Multiple ethnicities and cultures are found throughout the islands. In prehistoric times,
Negritos were some of the archipelago's earliest inhabitants. They were followed by successive
waves of Austronesian peoples. Exchanges with Chinese, Malay, Indian, and Islamic nations
occurred. Then, various competing maritime states were established under the rule of Datus,
Rajahs, Sultans or Lakans.
The arrival of Ferdinand Magellan in Homonhon, Eastern Samar in 1521 marked the
beginning of Hispanic colonization. In 1543, Spanish explorer Ruy López de Villalobos named
the archipelago Las Islas Filipinas in honor of Philip II of Spain. With the arrival of Miguel López
de Legazpi from Mexico City, in 1565, the first Hispanic settlement in the archipelago was
established. The Philippines became part of the Spanish Empire for more than 300 years. This
resulted in Roman Catholicism becoming the dominant religion. During this time, Manila became
the western hub of the trans-Pacific trade connecting Asia with Acapulco in the Americas using
Manila galleons.
As the 19th century gave way to the 20th, there followed in quick succession the Philippine
Revolution, which spawned the short-lived First Philippine Republic, followed by the bloody
Philippine–American War of conquest by US military force. Aside from the period of Japanese
occupation, the United States retained sovereignty over the islands until after World War II, when
the Philippines was recognized as an independent nation. Since then, the Philippines has often had
a tumultuous experience with democracy, which included the overthrow of a dictatorship by a non-
violent revolution.
It is a founding member of the United Nations, World Trade Organization, Association of
Southeast Asian Nations, the Asia-Pacific Economic Cooperation forum, and the East Asia
Summit. It also hosts the headquarters of the Asian Development Bank. The Philippines is
considered to be an emerging market and a newly industrialized country, which has an economy
transitioning from being one based on agriculture to one based more on services and
manufacturing. It is one of the only two predominantly Christian nations in Southeast Asia, the
other being East Timor.


MANILA, Philippines - The Philippine economy crawled to a 5.6 percent growth in the
second quarter, falling below the government’s target, but remains on track to sustain a high
growth trajectory in the next quarters, the country’s chief economic planner said yesterday.
This brought the first semester GDP growth at 5.3 percent, which would need to accelerate in the
second half to hit the government’s seven- to eight-percent growth target for 2015.
“Amid ongoing events in the global economy that may affect the country, the quality and
the rate of current growth of the Philippine economy give us some assurance that, with greater
vigilance and persistence in pursuing economic and governance reforms, we can withstand the
volatile markets overseas, Economic Planning Secretary Arsenio Balisacan said. The second
quarter growth in the gross domestic product (GDP) is an improvement from the five percent pace
in the first quarter – a three-year low – but slower compared to the 6.4 percent expansion a year
“Realistically, it would seem that a six-percent full year GDP growth would be better, since
we have to grow an average 6.5 percent just to stay within the six percent growth,” Balisacan said
in a press briefing yesterday.
“As one of the countries with a respectable growth compared to other emerging Asian
economies, the Philippines remains an attractive market and investment destination. Our economic
fundamentals are still strong,” he said. The agriculture sector contracted 5.9 percent in the first six
months, a reversal of the 3.4 percent expansion in the same period last year.
The Bangko Sentral ng Pilipinas (BSP) said the faster growth in the second quarter from
the first quarter gives authorities more space to keep its current monetary policy settings.
BSP Governor Amando Tetangco Jr. said the higher GDP growth in the second quarter was
supported by solid domestic aggregate demand, particularly consumption and capital formation
offsetting the decline in exports.
Spain is a sovereign state located on the Iberian Peninsula in southwestern Europe, with
two large archipelagoes, the Balearic Islands in the Mediterranean Sea and the Canary Islands off
the North African Atlantic coast, two cities, Ceuta and Melilla, in the North African mainland and
several small islands in the Alboran Sea near the Moroccan coast. The country's mainland is
bordered to the south and east by the Mediterranean Sea except for a small land boundary with
Gibraltar; to the north and northeast by France, Andorra, and the Bay of Biscay; and to the west
and northwest by Portugal and the Atlantic Ocean. It is the only European country to have a border
with an African country (Morocco) and its African territory accounts for nearly 5% of its
population, mostly in the Canary Islands but also in Ceuta and Melilla.

With an area of 505,990 km2 (195,360 sq mi), Spain is the largest country in Southern
Europe, the second largest country in Western Europe and the European Union, and the fourth
largest country in the European continent. By population, Spain is the sixth largest in Europe and
the fifth in the European Union. Spain's capital and largest city is Madrid; other major urban areas
include Barcelona, Valencia, Seville, Bilbao and Málaga.

Spain is a parliamentary democracy and constitutional monarchy. The current Spanish king
is Felipe VI. It is a middle power and a major developed country[11] with the world's fourteenth
largest economy by nominal GDP and sixteenth largest by purchasing power parity. It is a member
of the United Nations (UN), the European Union (EU), the Eurozone, the Council of Europe (CoE),
the Organization of Ibero-American States (OEI), the North Atlantic Treaty Organization (NATO),
the Organization for Economic Co-operation and Development (OECD), the World Trade
Organization (WTO) and many other international organizations. Spain has a "permanent
invitation" to the G20 summits that occur generally once a year. Spain is a constitutional monarchy,
with a hereditary monarch and a bicameral parliament, the Cortes Generales (General Courts).
The executive branch consists of a Council of Ministers of Spain presided over by the Prime
Minister, nominated and appointed by the monarch and confirmed by the Congress of Deputies
following legislative elections. By political custom established by King Juan Carlos since the
ratification of the 1978 Constitution, the king's nominees have all been from parties who maintain
a plurality of seats in the Congress.
The legislative branch is made up of the Congress of Deputies (Congreso de los Diputados) with
350 members, elected by popular vote on block lists by proportional representation to serve four-
year terms, and a Senate (Senado) with 259 seats of which 208 are directly elected by popular vote
and the other 51 appointed by the regional legislatures to also serve four-year terms.


The recent overall economic and financial developments confirm the stabilization that has
been unfolding over the last two years in Spain. In 2014 and early 2015, economic growth in Spain
was supported by rapid employment creation, easier financing conditions, improved confidence,
and lower energy and oil prices. These factors are expected to continue to support growth in the
short to medium term, despite high private and public debt levels continuing to exert a drag on
growth. Financial markets have stabilized, but the country remains vulnerable to sudden changes
in global investor sentiment. Labour market conditions are improving, but unemployment remains
very high. Social indicators are continuing to deteriorate, although the positive evolution of labour
markets may bring some improvement over the next years. Moreover, negative inflation in 2014
provided some relief in real gross disposable income for households in a context of continued wage
moderation. Housing prices seem to be close to bottoming out. In March 2014, the Commission
concluded that Spain was experiencing macroeconomic imbalances that require specific
monitoring and decisive policy action. In several dimensions, adjustment of the identified
imbalances has advanced, and the return to growth has reduced risks. Nevertheless, the nature,
magnitude and interrelations between the imbalances, in particular private and public sector
indebtedness, the negative net international investment position and the various policy challenges
in the labour market still expose Spain to risks. This Country Report assesses Spain's economy
against the background of the Commission's Annual Growth Survey which recommends three
main pillars for the EU's economic and social policy in 2015: investment, structural reforms, and
fiscal responsibility. In line with the Investment Plan for Europe, it also explores ways to maximize
the impact of public resources and unlock private investment. Finally, it assesses Spain in the light
of the findings of the 2015 Alert Mechanism Report, in which the Commission found it useful to
further examine the persistence of imbalances or their unwinding. The main findings related to
macroeconomic imbalances contained in this country report are:
• Despite a positive development in recent years, the current account surplus narrowed
significantly in 2014. This is caused by the slowdown in the main Spanish export markets and the
rebound of imports linked to robust domestic demand. Spain's external sector performance is also
affected by the high import content of exports, Spain's energy dependence, the relatively smaller
size of Spanish firms, and the high sensitivity of exports to changes in relative prices and costs.

• The large stock of external liabilities has kept increasing, making Spain vulnerable to
adverse shocks or shifts in market's confidence. The overall high stock of private and public debt,
both domestic and external, poses risks for growth and financial stability. The recovery of private
sector balance sheets is advancing, backed by credit contraction.

• Job creation has gathered pace, but unemployment remains very high. Youth joblessness
is very high, and long-term unemployment risks becoming structural, and leading to labour and
social exclusion. Labour market segmentation remains a challenge.

• Negative macroeconomic developments in Spain would have a significant impact on

other euro area countries. Structural reforms in Spain can contribute to supporting activity in the
euro area.

• Boosting private and public investment would help Spain further increase productivity
growth and improve competitiveness. Further investment to increase security of supply and
stimulate competition in energy markets remains a priority. Spain's research and innovation
performance still suffers from i.a., inadequate funding and governance.

• While the 2014 reform of the personal and corporate income tax simplifies the tax system,
its impact on the achievement of budgetary targets is still unclear.

• Despite progress made, starting-up and operating a business in Spain remains relatively
cumbersome, a fact that could slow the number of new firms. A competition-enhancing reform in
professional services has been on the agenda for long to intensify business dynamics and contribute
to lower consumer prices.
Japan is a sovereign island nation in East Asia. Located in the Pacific Ocean, it lies off the
eastern coast of the Asian mainland, and stretches from the Sea of Okhotsk in the north to the East
China Sea and Taiwan in the southwest. The kanji that make up Japan's name mean "sun origin".

日 can be read as ni and means sun, while 本 can be read as hon, or pon and means origin. Japan

is often referred to by the famous epithet "Land of the Rising Sun" in reference to its Japanese

Japan is a stratovolcanic archipelago consisting of about 6,852 islands. The four largest are
Honshu, Hokkaido, Kyushu and Shikoku, which make up about ninety-seven percent of Japan's
land area and often are referred to as home islands. The country is divided into 47 prefectures in
eight regions; Hokkaido being the northernmost prefecture and Okinawa being the southernmost
one. The population of 127 million is the world's eleventh largest. Japanese people make up 98.5%
of Japan's total population. Approximately 9.1 million people live in the city of Tokyo,[16] the
capital of Japan.

Archaeological research indicates that Japan was inhabited as early as the Upper Paleolithic
period. The first written mention of Japan is in Chinese history texts from the 1st century AD.
Influence from other regions, mainly China, followed by periods of isolation, particularly from
Western Europe, has characterized Japan's history. From the 12th century until 1868, Japan was
ruled by successive feudal military shoguns who ruled in the name of the Emperor.

Japan entered into a long period of isolation in the early 17th century, which was ended in
1853 when a United States fleet pressured Japan to open to the West. After nearly two decades of
internal conflict and insurrection, the Imperial Court regained its political power in 1868 through
the help of several clans from Chōshū and Satsuma, and the Empire of Japan was established. In
the late 19th and early 20th centuries, victories in the First Sino-Japanese War, the Russo-Japanese
War and World War I allowed Japan to expand its empire during a period of increasing militarism.

The Second Sino-Japanese War of 1937 expanded into part of World War II in 1941, which
came to an end in 1945 following the atomic bombings of Hiroshima and Nagasaki and the
Japanese surrender. Since adopting its revised constitution on May 3, 1947 during the occupation
by the SCAP, Japan has maintained a unitary parliamentary constitutional monarchy with an
Emperor and an elected legislature called the National Diet.

Japan is a member of the UN, the OECD, the G7, the G8, and the G20 and is considered a
great power. The country has the world's third-largest economy by nominal GDP and the world's
fourth-largest economy by purchasing power parity. It is also the world's fourth-largest exporter
and fourth-largest importer. The country benefits from a highly skilled workforce and is among
the most highly educated countries in the world, with one of the highest percentages of its citizens
holding a tertiary education degree.

Although Japan has officially renounced its right to declare war, it maintains a modern
military with the world's eighth-largest military budget, used for self-defense and peacekeeping
roles. Japan is a developed country with a very high standard of living and Human Development
Index. Its population enjoys the highest life expectancy and the third lowest infant mortality rate
in the world.


Japan has been known globally as an economy struggling to overcome long-standing

deflation and deflationary mindsets since the late 1990s. Major central banks have attributed
Japan’s deflation to insufficient monetary easing. To avoid the same problem and reduce the risk
of deflation, the Federal Reserve promptly and without hesitation adopted unconventional
monetary easing measures in the wake of the global financial crisis. The Bank of Japan followed
suit in April 2013 when it adopted quantitative and qualitative monetary easing (QQE) under new
Gov. Haruhiko Kuroda.

The main measures under QQE were purchases of various assets. The BOJ further
experimented a negative interest rate and yield curve control. These measures were expected to
raise aggregate demand and accelerate inflation through a decline in long-term interest rates with
a commitment to achieving a 2 percent inflation target. Stock prices and the yen’s depreciation
were also expected through a portfolio rebalancing effect and interest rate differentials. Four years
later, overvaluation of the yen and undervaluation of stock prices have been corrected. But, the
impact on the real economy has not been as strong as initially expected. Compared with the first
quarter of 2013, households’ current real consumption dropped a little. Business investment
remains well below cash flows due to stagnant sales despite historically high profits levels.
Underlying inflation remains at around zero percent, a reflection of unimpressive aggregate
demand. In 2017, inflation is expected to rise mainly due to the weakened impact of the oil cost
drop on prices, but it is widely expected that the BOJ is unlikely to achieve inflation of around 2
percent stably anytime soon. Why are households’ price and inflation expectations so high in
Japan? They are a reflection of long-standing stagnant income growth and anticipated tighter
household budgets. Households are very sensitive to food price hikes and often reduce their overall
real spending when food prices rise sharply. The survey also reveals that since 2013, households’
tendency to increase (nominal) spending compared with the previous year has risen due to
increased costs of consumer goods and services — not because of an increase in income or an
increase in expected future income. Regarding the spending over the next year, by contrast,
households were always planning to reduce total (nominal) spending even in a deflationary phase
— rather than postponing their spending — because of higher expected general prices. In these
circumstances, firms find it difficult to raise their sales prices continuously.
A cherry blossom (or commonly known in Japan as sakura) is the flower of any of several trees of genus Prunus,
particularly the Japanese cherry, Prunus serrulata

Chapter 28 - Inflation in Japan

Inflation is the rate at which the general level of prices for goods and services is rising
and, consequently, the purchasing power of currency is falling. In May, the core consumer price
index was flat from the previous month in seasonally-adjusted terms, matching the result in the
previous three months. May’s reading mainly reflected that higher prices for fuel, light and water
charges were offset by lower prices for food and furniture and household utensils.

Core inflation rose from April’s 0.3% to 0.4% in May. The print was in line with what
market analysts had expected and represented the highest rate since April 2015. Overall inflation
came in at 0.4% in May, matching April’s result.

Core prices for Tokyo—available one month in advance of the national figures and thus a
leading indicator for countrywide inflation—were flat on an annual basis, down from May’s
0.1% rise.
The Bank of Japan (BoJ) expects that core inflation will be between 0.6% and 1.6% in
the fiscal year ending March 2018. In the following fiscal year, the BoJ sees inflation between
0.8% and 1.9%. FocusEconomics Consensus Forecast panelists expect inflation of 0.6% in
calendar year 2017, which is unchanged from last month’s estimate. In 2018, the panel sees
inflation at 0.8%

2011 2012 2013 2014 2015

Inflation Rate -0.3 -0.1 0.4 2.8 0.8
(CPI, annual
variation in %)

Consumer prices in Japan rose 0.4 percent year-on-year in June of 2017, the same as in
sthe prior two months and matching market consensus. Food inflation was steady while cost of
transport and housing declined.

In June, prices of food increased by 0.8 percent from a year earlier, the same as in May,
namely, fresh food (0.5 percent from 0.4 percent), fish and seafood (5.5 percent from 5.9
percent) and fresh fruits (1.3 percent from -4.1 percent). In addition, prices fell further for fresh
vegetables (-4.0 percent from -1.3 percent).

Meantime, prices increased more than in a month earlier for fuel, light and water charges
(3.5 percent from 2.2 percent in May), mainly due to higher electricity cost (4.9 percent from 2.5
percent). Also, cost of clothing and footwear rose at a faster 0.2 percent (from 0.1 percent). Cost
went up less than in a month earlier for education (0.4 percent from 0.6 percent) and was flat for
medical care (from 0.3 percent).

Cost fell for: housing (-0.2 percent from -0.2 percent), furniture and household utensils (-
0.8 percent from -1.1 percent), transport & communication (-0.1 percent from 0.3 percent),
culture and recreation (-0.1 percent from 0.6 percent) and miscellaneous goods and services (-0.1
percent from 0.1 percent).

Core consumer prices, which exclude fresh food, went up 0.4 percent on the year,
unchanged from the preceding month's reading and in line with market estimates. The figure
remained at its highest level since March of 2015. On a monthly basis, consumer prices were flat,
the same as in a month earlier. In Tokyo, consumer prices rose 0.1 percent in July, compared to a
flat reading in a month earlier and in line with estimates. Core consumer prices, which exclude
fresh food, increased 0.2 percent and above consensus of a 0.1 percent rise.
Chapter 28 - Inflation in the Philippines (2017)

The rapid uptick was driven mainly by the higher price adjustment in the heavily-weighted
indices of housing, water, electricity, gas and fuel, the PSA said. The latest inflation figure was
slightly higher than the 2.6 percent rate recorded in December, and more than twice faster than the
1.3 percent in January 2016.

Consumer prices accelerated to 2.7 percent in January, the fastest in more than two years
since it registered at 3.7 percent in November 2014, the Philippine Statistics Authority (PSA)
reported yesterday.

The rapid uptick was driven mainly by the higher price adjustment in the heavily-weighted
indices of housing, water, electricity, gas and fuel, the PSA said. The latest inflation figure was
slightly higher than the 2.6 percent rate recorded in December, and more than twice faster than the
1.3 percent in January 2016.

Despite the pickup in inflation in January, growth in the food index decelerated to 3.4
percent in January from 3.6 percent in December. This was due to downward price adjustments in
the prices of fruits, vegetables, meat, corn, sugar, jam, honey, chocolate and confectionery.

Higher price adjustments, however, were recoded for fish as well as oils and fats. Rice
inflation also rose 1.8 percent in January from 1.6 percent in December. Damage inflicted by
typhoons Karen and Lando on rice paddies likely contributed to reduced supply of rice, Pernia

The shift to a unitary excise rate for cigarettes this month as mandated by the Sin Tax
Reform Law may also influence growth in inflation this year.

Source :

In July, consumer prices rose 0.3% from the previous month, up from June’s revised flat
result (previously reported: 0.1% month-on-month). The moderate rise mainly reflected higher
prices for housing, water, electricity, gas and other fuels, alcoholic beverages and tobacco and
transport, which more than offset lower prices for food and non-alcoholic beverages.
Inflation came in at 2.8% in July, marginally above June’s revised 2.7% (previously
reported: 2.8%) and below the central point of the Central Bank’s target for the 2016–2018 period,
set at 3.0% plus/minus one percentage point. Annual average inflation mirrored June’s 24-month
high of 2.7%.

Core consumer prices, which exclude volatile items such as foodstuffs and oil, dropped
0.3% from the previous month, down from June’s flat result. Finally, core inflation in July was
2.1%, which came in below June’s 2.6% print and marked the lowest result in almost one year.

Year-on-Year Inflation Rates in the Philippines, All Items

January 2012 - May 2017

2012 2013 2014 2015 2016 2017

Jan 4.0 3.1 4.2 2.4 1.3 2.7

Feb 2.7 3.4 4.1 2.5 0.9 3.3

Mar 2.6 3.2 3.9 2.4 1.1 3.4

Apr 3.0 2.6 4.1 2.2 1.1 3.4

May 3.0 2.6 4.5 1.6 1.6 3.1

Jun 2.9 2.7 4.4 1.2 1.9 2.7 r

Jul 3.2 2.5 4.9 0.8 1.9 2.8

Aug 3.8 2.1 4.9 0.6 1.8

Sep 3.7 2.7 4.4 0.4 2.3

Oct 3.2 2.9 4.3 0.4 2.3

Nov 2.8 3.3 3.7 1.1 2.5

Dec 3.0 4.1 2.7 1.5 2.6

Ave 3.2 3.0 4.1 1.4 1.8

The headline inflation at the national level went up by 2.8 percent in July 2017. It was
posted at 2.7 percent in the previous month and 1.9 percent in July 2016. Higher annual increments
were registered in the indices of the following commodity groups:

 Housing, Water, Electricity, Gas and Other fuels (2.2%);

 Transport (3.8%);

 Education (2.3%); and

 Restaurant and Miscellaneous Goods and Services (2.1%).

On the other hand, slower annual growths were noted in the indices of food and non-
alcoholic beverages at 3.3 percent and furnishing, household equipment and routine maintenance
of the house, 2.0 percent. The rest of the commodity groups retained their previous month’s rates

Meanwhile, excluding selected food and energy items, core inflation eased to 2.1 percent
in July 2017. It rose by 2.6 percent in the previous month and 1.9 percent in July 2016

A lower annual growth of 3.4 percent was noted in the country’s food alone index in July
2017. In the previous month, it registered an annual rate of 3.6 percent and in July 2016, 2.8 percent

Negative annual rates were recorded in the indices of corn at -0.1 percent; vegetables, -0.3
percent; and sugar, jam, honey, chocolate and confectionery, -2.4 percent. Moreover, slower
annual increases were observed in the indices of rice at 2.0 percent; meat, 4.3 percent; oils and
fats, 5.8 percent; and fruits, 7.3 percent. The rest of the food groups, however, exhibited higher
annual growths with the index for food products not elsewhere classified retaining its previous
month’s rate of 0.1 percent
National Capital Region (NCR)

Inflation in NCR furher moved upward by 3.8 percent in July 2017. In the previous month,
it rose by 3.1 percent and in July 2016, 1.0 percent. The transport index showed a double-digit
annual mark-up at 10.1 percent. Faster annual gains were also seen in the indices of the following
commodity groups:

 Clothing and Footwear (2.5%);

 Housing, Water, Electricity, Gas and other Fuels (1.2%);

 Health (3.7%); and

 Restaurant and Miscellaneous Goods and Services (3.9%)

On the other hand, lower annual growths were seen in the indices of food and non-alcoholic
beverages at 5.1 percent; alcoholic beverages and tobacco, 7.6 percent; and recreation and culture,
1.7 percent. The other commodity groups maintained their previous month’s rates

Areas Outside NCR (AONCR)

Inflation in AONCR was pegged at 2.6 percent in July 2017. It was the same rate recorded
in the previous month while it settled to 2.1 percent in July 2016. Mixed movements in the annual
growths among the commodity groups were posted during the month. Higher annual rates were
noticed in the indices of alcoholic beverages and tobacco at 6.0 percent and education, 2.5 percent.
Slower annual add-ons were, however, registered in the indices of food and non-alcoholic
beverages at 2.9 percent; housing, water, electricity, gas and other fuels, 2.6 percent; furnishing,
household equipment and routine maintenance of the house, 1.8 percent; and health and transport,
both at 2.0 percent

Six regions had higher annual mark-ups while the rest of the regions either had slower
annual growths or retained their previous month’s rates. The highest annual rate of 5.0 percent
remained in Region V (Bicol Region) while the lowest at 1.0 percent was still recorded in Region

Consumer prices at the national level increased by 0.3 percent in July 2017. In the previous
month, it posted a zero growth. From negative rates in the previous month, the indices of housing,
water, electricity, gas and other fuels picked up by 0.3 percent and transport, 1.1 percent.
Moreover, higher increments were registered in the indices of clothing and footwear at 0.2 percent;
health, 0.3 percent; and restaurant and miscellaneous goods and services, 0.6 percent. On the other
hand, alcoholic beverages and tobacco index moved up at a slower pace of 0.3 percent; recreation
and culture index, 0.2 percent; and education index, 0.1 percent. In addition, the index of food and
non-alcoholic beverages dropped by 0.1 percent. Movement in furnishing, household equipment
and routine maintenance of the house index remained at 0.1 percent while the communication
index had zero growth

Fare hike for railway transport service and increased rental rates of the dwelling units were
observed in NCR during the month. Upward price adjustments in petroleum products such as
gasoline and diesel and higher charges for electricity rates were also noted in many provinces.

On the other hand, prices of selected food items such as fruits, fresh meat, calamansi and
ginger were generally lower in many provinces and in NCR during the month.

1. Revisions on the inflation rates for June 2017 were due to the following reasons:

 Lanao del Sur was included in the computation of the CPI for June 2017. Prices for May
2017 were used to impute prices for June 2017 for comparability purposes with July 2017
as the province was able to conduct price surveys in sample municipalities outside Marawi
City in July 2017.

 As Lanao del Sur was not able to conduct price surveys in Marawi City, its prices were
imputed for July 2017 based on the price movements of commodities of the nearest
province, Lanao del Norte.

 Updated tuition fee from the province of Isabela was included in the computation of CPI
for June 2017.

Spain’s inflation rate has been confirmed at a more than four year high of 2.9 per cent in
January, coming in just below a 3 per cent initial estimate but still underscoring the diverging
inflationary performance

EU-harmonised consumer prices in the eurozone’s fourth largest economy leapt from 1.6
per cent in December, pushed up by the cost of housing and electricity. The 2.9 per cent reading
is the highest since December 2012.

A climb in core inflation, which strips out volatile elements such as food and energy costs,
was much more subdued however, rising to 1.1 per cent from 1 per cent in December.

Inflation has been on the march across Europe at the start of 2017 as the effect of last year’s
oil price slump fades from the annual inflation basket.

Average eurozone inflation hit its highest level since 2012 at 1.8 per cent in the January,
around the European Central Bank’s target of just below 2 per cent.

But senior policymakers at the ECB do not think the current leap in prices is sustainable or
a reflection of growing inflationary momentum in the eurozone.

The central bank has said it is yet to see any real signs of rising wage growth, which would
help maintain higher inflation rates are three years of below target prices.

Forecasts from the European Commission suggest Spain’s inflation rate will average 1.9
per cent this year before falling to 1.7 per cent in 2018. Higher consumer prices come amid a robust
two-year economy recovery in the country which was forced to bailout out its banking system in

But higher inflation threatens to a brake on growth in an economy where unemployment is

at 18 per cent – a seven year low – but still among the highest in the eurozone. (Khan, 2017)

Spain’s inflation rate picked up faster than expected in April after March’s pullback, the
country’s statistics agency has confirmed.
Final readings showed consumer prices rose 2.6 per cent in the year to April on an EU-
harmonised basis, confirming initial estimates released late last month. Economists had initially
expected an increase of 2.3 per cent.

Prices increased by 0.9 per cent over the month, with clothing and footwear seeing the
biggest rise. “Leisure and culture” costs also contributed to the rise, alongside higher prices for
hotels, cafes and restaurants. (Megaw, 2017)

According to a preliminary estimate released by the National Statistical Institute (INE) on

30 May, annual inflation eased from 2.1% in April to 1.9% in May. INE will release a complete
set of data on 13 June. Detailed data for April showed consumer prices jumping 1.4% over the
previous month, which doubled the 0.7% rise recorded in March. The monthly rise was mainly the
result of a sharp increase in prices for clothing and footwear as well as for alcoholic beverages and
tobacco. The core inflation index, which does not include prices for unprocessed food and energy,
added 1.2% over the previous month, up from the 0.5% rise recorded in March. Despite the sharp
increase, annual core inflation inched down from 1.2% in March to 1.1% in April, its lowest level
in 19 months. (“Inflation eases in May,” 2017)

The inflation rate in Spain weakened this month for the first time in almost a year, possibly
prefiguring a broader slowdown across the euro area.

Consumer-price growth came in at an annual 2.1 percent in March, weaker than economists
had predicted and down from 3 percent in February. The rate is still much stronger than a year ago,
when prices were falling, reflecting a jump in energy costs. Monthly inflation rate in Spain was -
0.02% in March 2017. That is 0.34 more than it was in February 2017 and 0.66 less than in March
2016. At the same time, 2017 year to date inflation rate is -0.93% and year over year inflation rate
is 2.29%.

Like in many other countries, inflation in Spain is calculated based on the Consumer Price
Indexes (CPI). Consumer Prices in this case are representing the prices that the end consumer has
to pay for the product or service together with all taxes and fees.
Inflation Rate in Spain is expected to be 1.70 percent by the end of this quarter, according
to Trading Economics global macro models and analysts’ expectations. Looking forward, we
estimate Inflation Rate in Spain to stand at 2.00 in 12 months’ time. In the long-term, the Spain
Inflation Rate is projected to trend around 2.20 percent in 2020, according to our econometric
Chapter 31 - Labor productivity in the Philippines


At Current Prices {₱}


165 43,493

Agribusiness, Forestry and Fishing 121, 1

285 20,955

Industry 641, 6
928 52,569

Services 350, 3
781 70,599

At Constant 2000 Prices {₱}


517 96,014

Agribusiness, Forestry and Fishing 60,9 6

08 3,728

Industry 387, 4
739 04,111

Services 196, 2
318 04,904

At Current Prices {₱}



Agribusiness, Forestry and Fishing 8.7 0.


Industry 5.0 0.

Services 4.9 5.

At Constant 2000 Prices {₱}



Agribusiness, Forestry and Fishing 0.3 5.


Industry 2.6 3.

Services 2.1 3.

It is shown in the table that the growth rates of all sectors (Agribusiness, Forestry and
Fishing, Industry, Services) have decreased from the year 2014-2015 at current prices except for
the sector of Services in which it increased by 0.3%. At constant 2000 Prices, all sectors have
increased from in the year 2014-2015.

Source of Data: Philippine Statistical Authority (PSA), Labor Productivity Statistics

Labor productivity across 12 major industries in the Philippines hit a four-year high at 6.3
percent in 2013, according to the Philippine Statistics Authority.

Data from the PSA showed that productivity improvement was best last year since growth
returned to positive territory at 4.7 percent from negative 1.7 percent during the height of the global
financial crisis in 2009.

Productivity is defined as the ratio of gross value-added to total industry employment,

expressed in prices of year 2000.

In peso terms, workers accounted for an average of P178,383 in gross value added in 2013.
During the crisis, productivity was pegged at P151,086.

Last year, the industry sector performed the best, with productivity growing by 6.2 percent
to P374,158.

Productivity of workers in the services sector increased by 4.5 percent to P189,883.

As for workers in the agriculture, forestry and fisheries sector, productivity improved by 4
percent to P60,094.

The industries covered include agriculture and forestry; fishing; mining and quarrying;
manufacturing, electricity, gas and water supply; construction; wholesale and retail trade;
transportation, storage and communications; financial services; real estate; public administration
and defense, and “other services.”
According to the PSA-Bureau of Labor and Employment Statistics, labor productivity can
be used to assess the likelihood of the country’s economic environment to create and sustain
“decent employment opportunities with fair equitable remuneration.”

An increase in labor productivity often influences the social and economic environment
positively which, in turn, leads to poverty reduction, it added. Without productivity growth,
improvements in work conditions are less likely to occur.

1. GRDP data based on updated 1993/2008 SNA available starting 2009.

2. Regional labor productivity is defined as GRDP per employed person in the region.

3. Labor productivity data for 2014 were computed using average employment data of the
April, July and October rounds of the Labor Force Survey (LFS) which excluded that of Leyte.
For comparability, 2014 growth rates were computed using 2013 labor productivity whose
employment data were the average of the April, July and October LFS rounds that also excluded
that of Leyte.

4. Labor productivity data for 2015 were computed using average employment data of the
January, April, July and October rounds of the LFS which excluded that of Leyte. The use of the
average employment data of the four survey rounds was based on the results of the referendum
conducted among members of the Inter-agency Committee on Labor and Productivity Statistics.
For comparability, 2015 growth rates were computed using 2015 labor productivity whose
employment data were the average of the April, July and October rounds of the LFS that also
excluded Leyte.

Sources of basic data: Philippine Statistics Authority, National Accounts of the Philippines
and Labor Force Survey.
Chapter 31


The life cycle theory of consumption is defined as an economic theory that pertains to the
spending and saving habits of people over the course of a lifetime. The concept was developed by
Franco Modigliani and his student Richard Brumberg. LCH presumes that individuals base
consumption on a constant percentage of their anticipated life income. An example supporting the
hypothesis is that people save for retirement while they are earning a regular income (rather than
spending it all when it is earned).

The Life Cycle Hypothesis concludes that the average propensity to consume is greater in
both young and aging individuals, since they are borrowing against future income (in the case of
young individuals) or using savings (as with aging or retired individuals). Middle-aged people, on
the other hand, have a greater propensity to save and a lower propensity to consume, enhanced by
a typically higher income.

The life-cycle hypothesis has been utilized extensively to examine savings and retirement
behavior of older persons. This hypothesis begins with the observation that consumption needs
and income are often unequal at various points in the life cycle. Younger people tend to have
consumption needs that exceed their income. Their needs tend to be mainly for housing and
education, and therefore they have little savings. In middle age, earnings generally rise, enabling
debts accumulated earlier in life to be paid off and savings to be accumulated. Finally, in
retirement, incomes decline and individuals consume out of previously accumulated savings.

Empirical studies of the life-cycle hypothesis have generated a large literature. Studies that
have focused on the savings behavior of older persons, however, have been inconclusive regarding
the correspondence between observed savings behavior and the pattern of saving and dissaving
predicted by the life-cycle hypothesis. Many studies seemingly in conflict with the life-cycle
hypothesis, have found that older persons continue to save in retirement. Several explanations have
been offered for this. King (1985), for example, notes that saving in retirement is not necessarily
inconsistent with the life-cycle hypothesis, if one accounts for the aversion of individuals to
uncertainty about the future (e.g., how long they will live and future inflation). Another
explanation is that the generosity of pensions reduces the need to save in preparation for retirement
and to dissave while in retirement. Life-cycle savings patterns in some European countries that
have generous pension systems such as France, Germany, and Italy appear to be consistent with
this explanation. Another related explanation for lack of dissaving in retirement is that
deteriorating health may limit the ability of individuals to consume at levels that are higher than
their pension income. Moreover, the pension wealth that retired persons hold is not liquid and they
are not able to draw down their pension wealth any faster than the annuity payments that they
receive. This health aspect of life cycle savings and consumption patterns raises an interesting
question: Should payments for health insurance also be viewed as a form of savings, and receipt
of health care services as drawing down one's "health insurance wealth"?

Spain is on its edge on developing further and further. According to Maria Tadeo, author
of the article Spanish Economy Expands at Fastest Pace in Almost Two Years:

The Spanish economy accelerated at the fastest pace in almost two years, extending a
recovery that shows no signs of abating. Output grew 0.9 percent in the three months through June
after expanding 0.8 percent in the previous quarter, the National Statistics Office said Friday in a
preliminary report. That’s the best reading since 2015 and matches the median estimate in a
Bloomberg survey of economists. From a year ago, the economy accelerated 3.1 percent. (1)
While market consensus initially pointed to a slowdown this year, the Spanish economy
continued to outperform its euro-area peers. Renewed momentum has prompted string of GDP
revisions from the International Monetary Fund, which now sees growth of 3.1 percent for 2017
compared to a previous estimate of 2.6 percent, and the Spanish government of Mariano Rajoy,
which forecasts growth of 3 percent instead.

That prediction is still too conservative according to economists at Banco Bilbao Vizcaya
Argentaria SA and Bankia SA, who believe this will be the best year for the Spanish economy in
a decade with output expanding 3.3 percent. The prospects of a continued recovery coupled with
further budget consolidation has prompted S&P Global Ratings and Fitch Ratings to upgrade their
outlook on Spain’s credit rating to positive from stable, hinting at a possible hike in the second
half of the year.

While Friday’s report didn’t break down components of GDP, economists say growth
probably benefited from accelerating household consumption fueled by strong job creation,
resilient exports and a pick up in services linked to tourism. Visitor numbers are on track to post
yet another record year despite concern that Brexit will reduce the number of U.K. tourists.

“Household consumption has rebounded and that’s going to manifest in the quarterly data,”
Miguel Cardoso, chief Spain economist at BBVA in Madrid said before the data were released.
“Exports are still strong despite coming off from a high point and the tourism sector is very
dynamic, that’s having a positive impact on services.”

The latest health-check on the Spanish economy comes on the back of Thursday’s second-
quarter unemployment report, which saw the nation’s jobless rate fall to the lowest level in eight
years. Retail sales data in June pointing to renewed impetus from consumers after spending lost
some ground at the start of the year.
Labor Productivity in Japan

Labor productivity index of Manufacturing was 101.4 (2010=100). The growth rate was up 3.8%
from the same month the year before. It was the seventh consecutive positive month. Labor
productivity index of Service Industry (the entire service industries) was 103.0 (2010=100). The
growth rate was up 6.9% from the same month the year before.

A look at labor productivity indices by industry (Mining and Manufacturing) shows that
the labor productivity growth rate went up in the 12 of the 22 industries compared with the same
month last year, for example, Electrical Parts & Devices (+18.5%), General-purpose Machinery
(+11.9%), Production machinery (10.3%). Labor productivity's growth of Electrical Parts &
Devices had exceeded +10% for four months mainly because of expansion of production of
electrical parts.

A look at labor productivity indices by industry (non-manufacturing) shows that the labor
productivity growth rate went up in 5, such as Business-related services (+16.1%),
Accommodations (+1.3%), and Goods Rental & Leasing (+1.0%) of the 15 industries compared
with the same month last year. Labor productivity's growth of Goods Rental & Leasing has been
consistently positive since January 2016.

Productivity in Japan increased to 101.40 Index Points in May from 93.80 Index Points in
April of 2017. Productivity in Japan averaged 90.56 Index Points from 1990 until 2017, reaching
an all-time high of 119.10 Index Points in March of 2007 and a record low of 67.70 Index Points
in April of 1993.
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