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No Free Lunch

Breaking out

/ 10:00 PM September 02, 2013

The second quarter GDP data came out last week, and as always, the numbers highlight things to be pleased about along with things calling for more determined work. The average reader probably doesn’t have ready access to the more detailed data. Thus, I thought it worthwhile to share with readers some of the interesting observations that come out of a closer examination of the numbers. There are five key observations I will highlight here.

First, the overall economy’s growth both speeded up and slowed down, depending on the time perspective. The overall growth rate of 7.5 percent is much faster than the 6.3 percent posted in the same quarter last year, so in that sense, the economy is speeding up. But compared to the first quarter growth, which was propelled by election spending to a hefty 7.7 percent (revised from the earlier-announced 7.8 percent), growth would appear to have moderated somewhat. Still, the difference of 0.2 percent is hardly of any statistical significance. But based on the quarter-on-quarter (as against year-on-year) GDP growth after netting out seasonal effects, there was indeed a slowing down from the first quarter’s 2.3 percent to just 1.4 percent in the second quarter, with less influence from election spending.

Second, the agriculture, fishery and forestry sector, together with the services sector, dampened growth in the second quarter. Sadly, agriculture, fishery and forestry output fell from its value in the same quarter last year (-0.3 percent). This was a reversal from the positive (albeit feeble) 0.6-percent growth in the same quarter last year. Quarter-on-quarter growth was likewise negative (-0.8 percent), reversing the first quarter’s positive but miniscule 0.2-percent growth. The sector’s saving grace was that for the first two quarters together (i.e., first half), agriculture still did better with a 1.4-percent growth compared to last year’s corresponding 0.9-percent first semester growth. But this is of little consolation considering that production in the sector still failed to keep up with population growth. Meanwhile, services, while growing heftily, moderated to 7.4 percent from last year’s 7.7 percent, with the biggest slowdown happening in transport and communication. In particular, water and air transport declined, posting  minus 6.6- and minus 5.3-percent growth respectively.  Communication also slowed down from last year’s 8.4 percent to only 2.9 percent. But other services, especially finance and real estate, actually sped up. In the case of finance, faster growth came from dramatic acceleration in the insurance industry, which nearly tripled last year’s 5.7-percent growth to 16.6 percent now.


The third key observation—and this is the most significant—concerns the continuing good news on the industry sector: Industrial growth continues to speed up. Manufacturing and construction in particular have boosted the sector to double-digit (10.3 percent) growth. Manufacturing (also with 10.3-percent growth) sustains its accelerating trend, more than doubling its growth a year ago (4.3 percent) and further improving on its previous quarter performance (9.5 percent). If people have been talking about a manufacturing renaissance in the country, it’s partly because the numbers so far appear to support it. Manufacturing grew at an annual average of 7.5 percent in 2010-2012, after averaging only 3.5 percent in the previous six years (2004-2009). And as seen above, more recent growth has broken into double digits. At the same time, construction substantially speeded up from last year, from 11.6- to 17.4-percent growth, though slower than the election-induced construction surge of over 29 percent in the previous two quarters. Mining, on the other hand, suffered a

reversal (-2.7 percent) driven by reduced nickel production, even as copper and gold output actually grew by 40.3 and 7.1 percent, respectively. Quarrying, pushed by brisk construction growth, grew at a similarly brisk 13.1 percent.

Fourth, consumption spending growth has tapered while investment spending has speeded up. This is the way we want it. Many have constantly lamented how our economy has traditionally been driven dominantly by consumption spending, leading us to a largely hollow growth. This time, however, household consumption growth has tapered to 5.2 percent from last year’s hefty 6.6 percent, while capital formation has speeded up to 13.2 percent, from last year’s 3.6 percent. This continued encouraging growth in overall investment is particularly significant in light of the fact that capital formation virtually stood still in most of the previous decade, averaging zero growth in 2004-2009. Now, business confidence is at levels we haven’t seen in a long time, giving good reason to expect sustained rapid growth ahead.

Finally, and largely beyond our control, exports continued the decline that started in the previous quarter, dampened by economic pressures abroad. The encouraging news is that our agricultural exports actually grew at a zooming 37 percent, with banana and sugar exports growing in excess of 60 percent. This suggests to me that our overall growth, already high as it is, would further speed up once the export markets (particularly for electronics), which have been subject to cyclical downturns, normalize. It’s also worth noting that our services exports actually grew 4 percent overall; it’s in goods exports where the problem lies.

Overall, then, our positive economic momentum continues, and against the troubles some of our erstwhile more dynamic neighbors have been facing lately, including a recession in Thailand, ours appears to be an economy that is indeed breaking out.

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