Is confidence dissipating?
I had expected the economy’s growth performance to pick up in the third quarter, and wrote so two weeks ago, a week before the official data were announced. It turns out I was both wrong and right.
Let me explain. I was wrong because the reported economic growth rate for the third quarter (3.2 percent) was lower than the second quarter figure announced last August (3.4 percent).
But wait: that initial Q2 estimate has been reduced to 3.1 percent. Note that the National Statistical Coordination Board (NSCB) always describes the figures they first announce 60 days after the end of the quarter as preliminary. The NSCB found that newer data showed construction to have fallen more steeply than earlier thought. Transport, communication and storage, utilities and manufacturing were also revised downward. Meanwhile, the Q2 growth rates were revised upward for real estate, trade, finance, agriculture and forestry, and other services. And so, with the revised and lower Q2 figure, the third quarter growth in the economy was indeed better, albeit very slightly so, than in the second quarter. It’s in that sense that I was right.
Better or not, the third quarter growth was nonetheless a letdown. I cited three reasons for expecting better growth in the second half: (1) government spending was catching up, (2) agriculture growth for the first three quarters, as reported by the Bureau of Agricultural Statistics (BAS), seemed favorable, and (3) leading indicators tracked by government statisticians pointed to a growth pickup in the third and fourth quarters. Indeed, government infrastructure spending began catching up in July. But it has remained lower than last year’s and continued to depress construction, which stayed negative though less so (-12.2 percent in Q3 versus -23.3 percent in Q2). BAS farm data only gave growth for the first three quarters combined, masking the significant slowdown in the third quarter alone owing to natural calamities. Meanwhile, the NSCB’s leading indicators did correctly foreshadow acceleration in Q3, and suggest that stronger acceleration is occurring in Q4.
However, there was a distinct slowdown in key items over the last few quarters. Foremost of these is private construction. A year ago, the steep decline in public construction was more than offset by hefty growth in private construction activity, which jumped 35.7 percent in Q3 last year. This has since eased to 24.6, 22.0 and 10.9 percent, and turned negative last quarter at -7.8 percent. With both private and public construction now on a decline, the whole construction industry is down -12.2 percent, and this has been the biggest drag on the economy of late. Growth in private construction appears to have fizzled out for now; we need a major rebound in public construction as quickly as possible to compensate. Will the government’s P72 billion Disbursement Acceleration Plan do the trick? We can only hope so, but it’s already December, and government’s historical track record of project implementation delays on the ground doesn’t inspire much confidence.
Still another disturbing slowdown is in manufacturing, which has slowed down to 3.1 percent growth from the first quarter’s 8.8 percent and last year’s double-digit rates boosted by the election season. Food manufacturing, the biggest segment of this sector, in fact declined -15.2 percent. Suffering similar drops were textiles (-14.5 percent), electrical machinery (-9.2 percent) and basic metal industries (-7.7 percent).
But there is good news, too. There have been hefty increases in furniture and fixtures (111.7 percent), office and computing equipment (62.5 percent), paper and paper products (27.3 percent), chemical and chemical products (25 percent), and non-electrical machinery (22 percent). While overall manufacturing appears to be slowing down, there are pockets of rapid growth and opportunity within the sector.
The other reason the third-quarter growth performance was a letdown was the fact that our growth lagged behind all of our close neighbors’. Compared to our 3.1 percent growth, Indonesia had 6.5 percent, Vietnam and Singapore 6.1 percent, Malaysia 5.8 percent, and Thailand 3.5 percent. This despite these countries’ much greater dependence on exports, which have weighed down growth in our part of the world due to the troubled economies in Europe and America. This implies that our inferior growth is of our own making and not to be attributed to slow export markets alone. And this can clearly be traced back to the construction decline.
What will it take to perk the economy up again? In the immediate term, the government must push the infrastructure program full throttle, even as it tries to plug corruption loopholes. By my rough calculations, the P72-billion fiscal stimulus package, if disbursed quickly, can kick up economic growth by 2 to 3 percentage points, not counting the “multiplier effects” on further spending downstream. There is little we can do to stimulate further export growth in the short term, but we certainly must build even greater resiliency on this for the longer term, by focusing more on non-traditional (e.g., Asian) markets where growth has remained robust.
But what worries me most is the possible dissipation of the initial confidence surge that greeted the new administration and led to brisk private domestic investment growth over the past year. With these private domestic investment numbers now apparently slowing down while price increases have been speeding up, the President and his men on top of the economy should keep a close eye on the ball—or risk losing steam altogether.
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