nestor a espenilla, jr : speaking through speech by mr nestor a espenilla, jr, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), delivered by ms maria almasara cyd n tuano - amador, deputy governor of bangko sentral ng pilipinas, bsp christmas program, manila, 12 december 2018. * * * fellow members of the monetary board — secretary sonny dominguez, mbm philip medalla, mbm jun de zuniga, mbm peter favila, mbm tony abacan, and mbm bruce tolentino who is celebrating his first christmas here in the bsp. our diligent and reliable sector heads – dg diwa guinigundo, dg chuchi fonacier, dg cyd amador, and senior assistant governor dahlia luna. family, friends, fellow bspers, magandang hapon sa inyong lahat! this afternoon, i am so happy to be here amongst all of you. from the picc entrance proceeding to where i am now sitting, along the way, i was able to greet those nearby to exchange smiles and nods even from afar i was able to acknowledge and let you know through simple gestures that i truly appreciate each of you. i appreciate you individually, and collectively as part of this group that comprises the bsp family. team bsp. for several events now, i have, for health reasons, requested bsp officers to deliver messages on my behalf. i have allowed others to speak for me and i have spoken through others. this is not an easy thing for me to do, as i am by heart, a speechwriter and am mindful of the power of the podium. i must admit that allowing myself to speak through others can be a humbling experience as it reminds me of my own limitations. but there are two things that also make it a very powerful exercise. allowing myself to speak through others emphasizes the value of giving them full and complete trust. designating others to give messages on my behalf is accompanied by complete confidence that the officers i have requested to do so will not only read from a sheet of paper. rather, they do so, fully believing in the messages as well. in so doing, they are not only echoing my words, but are ambassadors and staunch advocates of the bsp ’ s best interests. when i took a two -

step back from the current context and explore an issue that ought to receive more attention – the longer - run potential growth rate of our economy. one reason for the low neutral rate of interest is that potential growth appears to have slowed. since the crisis ended, forecasters have broadly reduced their estimates of longer run growth by a full percentage point – from about 3 percent to about 2 percent. 3 this seemingly modest reduction implies dramatically smaller increases in living standards over time. a growing body of research shows that deep recessions accompanied by severe financial crises often leave behind permanent damage. 4 one recent analysis suggests that in about one - third of such cases there is no permanent damage ; one - third of the time there is a permanent reduction in the level of potential output but not its subsequent growth rate ; and one third of the time there is a reduction in both the level of potential output and in the growth rate. 5 unfortunately, many economies are currently in danger of falling into the third category, including the u. s. economy. output growth can be broken down into increases in hours worked and changes in output per hour, or productivity. most of the decline in estimated potential u. s. growth appears to be from lower productivity. labor productivity growth began to slow around 2005 – before the crisis – and been only 1 / 2 percent annually since 2011 – the slowest five year period since world war ii. the productivity slowdown has been worldwide, and has been seen in countries that were not as strongly affected by the crisis, so u. s. specific factors are probably not the main cause. 6 increasing productivity is necessary if living standards are to continue to rise over generations. so two important questions arise : why has productivity growth been so slow? and what does the future look like? we have tentative answers to the first question. labor productivity is a function of three things. the first two are the skills of the labor force, and the tools they have, particularly equipment, software and the like. these are inputs to production and are driven by private and public investment. the third determinant is called “ total factor productivity, ” or tfp, which refers to the ability of firms to produce more efficiently given the first two inputs. for example, as businesses learned how to incorporate advances in information technology into their production processes, there was a surge of productivity growth from roughly 1995 to 2005. the weak performance of productivity since the crisis appears to stem mainly from weak business investment and low tfp growth. weak