Where is our growth coming from?
Most expect the Philippine economy to grow faster this year than it did in 2015. One historical trend alone provides enough basis for this bullishness: The economy always does better in election years. I’ve tracked the country’s GDP (gross domestic product) growth data over the last 15 years and noted that the economy grew at an annual average of 7 percent in election years, against only 4.5 percent in nonelection years. I don’t believe this to be coincidental, as election-related spending by both candidates and the government provides a sufficient boost to significantly explain the difference.
While data for the first half of 2016 aren’t due until later this month, the first-quarter growth figures already bear this out. The Philippine Statistics Authority reported last May that our domestic economy posted an annual growth rate of 6.9 percent in the first three months of the year, against only 5 percent in the same period last year. Even more impressive has been the growth in gross national income (GNI, formerly known as gross national product or GNP), which was even faster at 7.6 percent in the first quarter. GDP tracks production (and incomes) within the country by Filipinos and foreigners alike (so GDP can also be taken to mean “Gawa Dito sa Pilipinas,” or made in the Philippines), whereas GNP/GNI measures the production and incomes of Filipinos (our nationals) here and abroad (that is, “Gawa Ng Pilipino” or made by Filipinos). That GNP/GNI grew significantly faster than GDP implies that incomes that Filipinos earned overseas grew even faster than what was earned here at home; indeed, the data say that such overseas income grew by 10.7 percent.
Where did the boost in the domestic economy come from? The answer would help us tell how such growth must have impacted on the lives of ordinary Filipinos. Let’s take a closer look at the figures. Here, we can look at the numbers from both the spending (demand) side and the production (supply) side.
Government spending for both consumption and infrastructure was clearly a key growth driver in the first quarter, with government consumption growing 9.9 percent and public construction seeing a hefty jump of 39.9 percent. The corresponding figures last year were only 2.4 and 20.7 percent, respectively. We thus clearly see the speed-up associated with being an election year. Apart from the government, the other sources of demand for the goods and services the economy produces are private consumers, firms spending on investments, and foreigners buying our exports of goods and services, including visiting tourists.
Private consumer spending grew by 7 percent against last year’s 6.4 percent, but more impressive was investment spending on fixed capital, which sped up to a 25.6-percent annual growth from last year’s 12.7 percent. Investments in durable equipment jumped 36.6 percent, nearly three times faster than last year’s 13.8 percent. The biggest growers here were industrial equipment, notably sugar mill machineries (which grew 873.3 percent, or a nine-fold growth!), office equipment and computers (110.8 percent) and water transport equipment (85.5 percent).
Despite a slower world economy, exports did better than in the same quarter last year (6.6 percent against last year’s 5.1 percent), although slower than last year’s full-year growth of 9 percent, propelled more by exports of services. These service exports include still fast-growing business process outsourcing, which actually benefits from harder times abroad as companies are driven to outsource where business services are cheaper. Also driving it is tourism services. Imagine how much more this can grow, and how many more jobs we can create, if we can overcome current infrastructure constraints, especially on airport facilities.
Looking at growth from the production side of the economy gives us a clearer picture of who are benefiting from the growing economy. Among the three major economic sectors, industry grew fastest at 8.7 percent, although services, traditionally our economy’s growth leader, also grew at a hefty 7.9 percent. The big downer was agriculture, which shrank by 4.4 percent, the largest dip the sector has seen in the past two decades.
Manufacturing is good news. Comprising the bulk (71 percent) of the industry sector, it sustained its brisk growth at 8.1 percent, continuing the manufacturing resurgence that we have been seeing for the last six years. This has been a truly remarkable trend, as it suggests that we are undergoing, albeit belatedly, some semblance of industrialization that we missed in the past two decades, when we became a mainly services-driven economy. China took the lion’s share of manufacturing growth then, as its cheap labor coupled with a huge domestic market lured most major manufacturing operations there. But that has since changed. China’s labor costs have shot sky-high with workers now in short supply, and manufacturers are shifting elsewhere, including to our own economic zones. And that’s good news.
In services, banks, real estate and retail malls—notably the primary sources of wealth of the richest billionaires among us—continue to be the fastest growers, all growing much faster than the overall economy. In stark contrast, the big decline in agriculture should disturb all of us, especially with 70 percent of the Filipino poor being rural dwellers mostly dependent on the land. The continuing surge in manufacturing helps dampen this, as more stable manufacturing jobs are replacing largely informal-sector ones. But we need to see more fundamental rebalancing of our economy’s growth to get more Filipinos to benefit from it.
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