Half full, half empty

News about the economy’s 6.9-percent growth was met with collective relief, in some cases jubilation, when the Philippine Statistics Authority released the third-quarter economic data last week. Most observers obviously expected worse, including economists in banks, academe and international development institutions, whose growth forecasts were lower than the second-quarter figure earlier reported at 6.5 percent. That number itself turned out to be an underestimate, and was revised upward to 6.7 percent after updated figures on the banking, real estate and construction industries came in.

All that is welcome news. But the fact is, the economy still posted slower performance compared to a year ago, when the corresponding third-quarter figure was 7.1 percent. Taking the first nine months together, this year’s average gross domestic product (GDP) growth of 6.7 percent is also significantly slower than last year’s comparable figure (also 7.1 percent). And as fellow Inquirer columnist Prof. Winnie Monsod has pointed out, we actually fall short of our real target GDP growth, which had been set at 7-8 percent since 2015, and which we have consistently missed. The quoted target growth range now is a more modest 6.5-7.5 percent, which is actually a 3-year-old target. That nobody now mentions the original 7-8 percent target range is tacit admission that this is no longer attainable, considering both external and internal developments.

It is useful to examine the breakdown of the growth data to better understand what is happening in the economy. Why did the economy in fact slow down from its performance last year? Where did the slowdown come from? Here, one must look at both the supply (production) and demand (expenditure) sides of the economy. It is the demand or spending side that provides the impetus for producers to raise or lower their production levels, and by how much. There are four major sectors that buy the goods and services produced in the domestic economy. Private consumers account for the biggest portion (around 40 percent) of total spending for the domestic economy’s produced goods and services, while foreign buyers, through our exports, account for the next largest portion (36 percent). Investment spending by both the private sector and the government make up 17 percent. The remainder (7 percent) goes to government consumption (i.e., noninfrastructure) spending. Let’s examine the data.

Of these four, all except exports slowed down from their year-ago performance, with public and private investment spending having slowed down the most. On a cumulative 9-month basis, government construction growth (10 percent) slowed to only one-third of its growth a year ago (30.9 percent). Private construction also slowed from 13.4 to 5.8 percent. Investments in durable equipment also slowed to less than one-third of its pace last year, from 37.9 percent to 11.6 percent this year. Private consumer spending also tempered from 7.3 percent last year to 5.6 percent this year, likely due to faster price increases this year, with the inflation rate having risen to 3.2 percent from last year’s 1.8 percent. Meanwhile, government consumption spending also slowed from 9.6 to 5.3 percent. It was actually exports that saved the day, with a doubling in its growth from 9.9 to 19.2 percent.

On the production side, it was manufacturing that fed this export surge, with a 9.4-percent growth in the third quarter, and 8.3 percent cumulatively for the year so far (from 7.0 and 7.0 growth a year ago, respectively). Coupled with agriculture’s swing from last year’s negative (-0.6 percent) to this year’s positive performance (5.8 percent), these were the main sectors on the supply side that saw improved growth. The rest of the economy practically slowed down this year.

What does it all mean? Achieving our desired growth path will entail getting households, government and business firms to spend more, and faster. That means making good on “Build, Build, Build” and ensuring a better investment climate, among other things. Failing on that, I’m afraid we will have to content ourselves with a perennially half full and half empty glass.

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