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No Free Lunch

We can do 7-8 percent

/ 05:11 AM January 30, 2018

While public reception for the 2017 economic growth numbers has been mainly positive, it is, as usual, a mix of good news and bad news, and there remains much room for improvement if we are to sustain the current growth momentum, widen its benefits and speed up further. There are three observations on the economic data that I will focus on here.

First, there are continuing signs that a renewed industrialization may be underway. The industry sector, particularly manufacturing (which comprises the bulk of it), is now the pacesetter for the economy, now growing faster than the services sector, the growth leader for the longest time. Manufacturing growth (at 8.6 percent) now outstrips that of the traditionally fast-growing services subsectors of finance (banks and insurance, now growing at 7.7 percent) and real estate (7.5 percent). It is even catching up with the star performer, business process outsourcing, where growth has moderated lately to about 9 percent. BPO’s stellar double-digit performance in past years appears to have peaked, and, looking forward, is likely to taper further given political and technological trends. The now eight-year growth streak of manufacturing is a welcome development to those of us who have long rued how industrialization had eluded us, given the broad benefits it brings to an economy and its people. With hundreds of thousands of new industry jobs coming about yearly since 2010, this is helping improve the quality of jobs in the economy, crucial especially at this time when growth in overseas worker deployment has slowed down.

Second, there remains a wide scope for improvement in agriculture. Put more bluntly, the sector still has much shaping up to do. The agriculture, fishery and forestry (AFF) sector has reversed its negative performance of the previous year, but remains the laggard, growing much more slowly (3.9 percent) than the overall economy (6.7 percent), thereby dragging it down. Agriculture alone (meaning crops, poultry and livestock) fared better with 5 percent, but fishery and forestry both continued to slide (-1 and -5.9 percent growth, respectively), thus pulling down the entire sector. Our staples palay and corn did well, with 9.4 and 9.8 percent growth, respectively, as did sugarcane, which rebounded with a hefty 30.2 percent growth. But top agricultural exports coconut, banana and pineapple were sluggish (0.7, 2.9 and 2.4 percent, respectively), while mango and coffee both took steep dives (-9.4 and -10.1 percent).

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All told, at least two things remain glaringly wrong with our agriculture outcomes relative to our neighbors: One, our staples are much more expensive, hence much less affordable to the poor, and two, our $6-million annual earnings from farm exports are a mere fraction of what our comparable neighbors earn from theirs (from Vietnam’s $15 billion to Thailand’s $54 billion). I’ve written before about how lack of gamma ray treatment facilities may be our missing link to much greater farm product exports (“Agri’s missing link?,” 9/15/17).

Third, public and private investments need further speeding up if we are to sustain our economy’s momentum. Fixed capital formation in four forms—construction, durable equipment, intellectual property products, and breeding stock and orchard development—has grown briskly since 2010, following stagnation over much of the 2001-2010 decade. Since 2010, private construction has grown mostly in the double digits, averaging 10.5 percent in 2010-2017, while investment in durable equipment grew even faster at an average rate of 15.8 percent. Investment in intellectual property products (prominently software and knowledge materials) has zoomed at an average of 20-percent annual growth. But farm investment has fallen behind, with breeding stock and orchard development inching up by a mere 0.7 percent yearly on average—yet another reflection of our agriculture sector’s woes.

All told, we have wide potential for even faster growth. After averaging only 4-5 percent growth for over two decades, we’re now sustaining 6-7 percent, even in a postelection year. We can now set our sights on ramping up to 7-8 percent or more in the years ahead.

cielito.habito@gmail.com

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TAGS: Cielito F. Habito, economic growth, No Free Lunch, Philippine economy
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