Where did our growth come from?
Now it’s official: the Philippines is the fastest-growing economy in Asia. Beating China’s first quarter growth (7.7 percent) by a hair, our 7.8-percent growth in gross domestic product (GDP) was proudly homegrown, achieved in the face of a hefty drop (-7 percent) in exports. This implies that domestic demand for our economy’s goods and services grew at such a rapid pace that not only did it offset the export decline; it even pushed overall growth to what many see as an unusually high rate.
There is something both usual and unusual about our first quarter growth. On one hand, such extraordinary growth is not so unusual for an election year. Recently, I noted how election years have seen growth exceed the average for nonelection years by 2-3 percentage points (“Elections and the economy,” Inquirer, 5/14/13). This is because massive election spending by both candidates and government has a strong stimulative effect on the economy. In fact, our economy actually grew by an even faster 8.4 percent in the first quarter (and 8.9 percent in the second quarter) in the previous election year of 2010. With this, one would think that our recent growth was not such a mean feat after all.
But it is. Even with the above observations, there is still something unusual and impressive about our first quarter growth. Consider this: the Q1-2010 growth of 8.4 percent followed Q1-2009 growth of a mere 0.5 percent. This means that growth in Q1-2010 was built on a relatively low base, making it easier to post a higher percentage growth at the time. This is the so-called “base effect,” which can go the other way around when the past year’s growth is strong. Note, however, that we achieved 7.8-percent growth in Q1-2013 even as growth in Q1-2012 was a brisk 6.5 percent. This makes our recent growth even more impressive as it was built on a normal if not relatively higher base. Economic Planning Secretary Arsenio Balisacan was thus justifiably proud in dismissing doubts on the past year’s already impressive growth rates as “being due to base effects only.” The numbers clearly suggest otherwise, and that the economy is sustaining robust growth with vigor coming from within, at least so far.
It is constantly said that overseas remittances have propped up our economy’s growth, as they put huge amounts of money in people’s pockets to spend on their consumption requirements. Thus, ours has largely been a consumption-driven growth especially prior to 2010, whereas an investment-driven growth would have been more desirable inasmuch as investment, by its very nature, builds even greater capacity for growth in the future.
Well, not this time. Household consumption had actually slowed down to 5.1 percent in the first quarter, after averaging 6.6 percent over the previous four quarters in 2012. But it was investment spending (“capital formation” in the GDP accounts) that zoomed, growing at a whopping 47.7 percent in the first quarter. Construction was the major driver: government construction grew by 45.6 percent over the past year, while growth in private construction was no less impressive at 30.7 percent. Meanwhile, investment in durable equipment and intellectual property products grew at 9.4 and 10.4 percent, respectively. What all this tells us is that growth was not primarily government-induced, as private investment was rather strong as well, reflecting continued high level of confidence in the business and general economic environment.
What did people invest in? Apart from new buildings and structures, the data show investments in durable equipment—growing most in tractors, mining and construction machinery, other specialized industrial machinery, air conditioning and refrigeration equipment, and other general industrial machinery. These data suggest that farms, mines and factories are being built or expanded, even as government has been building more roads, bridges and other public infrastructure to help generate more business.
What production activities pushed our economy’s growth? This time, industry, particularly construction and manufacturing, posted the fastest growth at 10.9 percent, while services and agriculture grew by 7.0 and 3.3 percent respectively. I am particularly heartened that manufacturing accelerated further to 9.7 percent from an average annual growth of 7.5 percent since 2010, especially after writing last week of how we now appear to be resuming our erstwhile aborted industrialization. Food manufacturing provided the primary boost (12.2 percent) along with radio/TV equipment, chemicals/chemical products, basic metal industries, machinery and equipment, all of which grew at double-digit growth rates. But mining took a beating, contracting by 17 percent overall with steep drops in the production of gold (-43.3 percent), nickel (-19.5 percent) and nonmetallic mining (-81.2 percent).
Banking and insurance led the growth in services, followed by government services and real estate. As expected, broadcast media, awash with campaign ads, boosted recreational services to a 21.3-percent growth. But agriculture has remained sluggish with a 2.8-percent growth, although fishing did better with 5.5 percent.
Overall, the good news lies in the brisk growth in the industrial sector, as it tends to bring better quality jobs. But we need to do much more work on agriculture. As we try to broaden the sectoral composition of our growth, we need to ask not just where the growth is coming from, but more importantly, who benefits from that growth.
* * *