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What caused the slowdown?

/ 05:24 AM November 16, 2018

The third-quarter GDP growth report was a letdown to many, as the 6.1-percent GDP growth rate reported was much slower than the 7.2-percent figure posted in the same quarter last year, though hardly different from the 6.2 percent of last quarter.

Where did the slowdown come from? On the production side, the biggest dampener was agriculture, fishery and forestry (AFF), which not only slowed down (which means having a lower growth rate), but where output actually fell, with a negative growth rate of -0.4 percent. Last year’s comparable figure was 2.6 percent. Agriculture alone (not counting forestry and fishery) fell 0.1 percent.

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One has to worry when agriculture production falls, or even if it still grows, but at a pace slower than the growth of overall population, now about 1.7 percent. What that means, in the favorite analogy of former president Fidel Ramos, is that every Filipino gets a smaller slice of the bibingka (rice cake).

Fortunately, industry and services grew by a healthy 6.2 and 6.9 percent, respectively, although slower than last year’s corresponding rates of 8.1 and 7.3 percent.

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For this slowdown analysis, it’s more useful to compare cumulative growth over the first three quarters of the year rather than just third-quarter figures alone. Cumulatively, AFF growth was still a positive 0.4 percent, but less than a tenth of last year’s 4.6 percent. As always, weather had much to do with this, as typhoons this year appear to have wrought greater damage to farms than they did

last year. In particular, rice, corn, sugarcane, mango, coffee and cassava saw production declines, with the biggest drop suffered by sugarcane (-20.5 percent), followed by coffee (-6.4 percent).

Mining and quarrying was another contributor to the overall slowdown, reversing last year’s positive 3.3-percent growth to a 1.5-percent decline, particularly in nickel (-6.5 percent), copper (-3.7 percent), gold (-3.6 percent), and nonmetallic mining (-10.5 percent). Offsetting these drops was the 11.1-percent growth in stone quarrying, reflecting the hefty growth in construction activity, which more than doubled its growth rate from 5.7 percent last year to 13.3 percent this year. Public construction was the bigger contributor to this pickup in overall construction, as it expanded by a hefty 22.9 percent, compared to private construction’s slower but also robust 9.4-percent growth.

The manufacturing slowdown is of some concern, with growth in the last two quarters (5.5 and 4 percent) falling well below the average of 7-8 percent seen over the last seven years. Manufacturing activity has been surging since 2010, when freer trade within Asean and, along with it, with China because of the Asean-China free trade agreement, helped boost domestic manufacturing activity. Is the manufacturing surge beginning to fizzle out?

While two quarters don’t necessarily spell a trend, the manufacturing sector bears close watching as it provides better-quality jobs than in most other industries.

Closer examination of the data shows that food manufactures, the single largest chunk accounting for nearly a third of the sector’s output, slowed down from last year’s 9.3-percent growth to 5.9 percent this year. This is likely due to higher inflation, particularly in food products. Interestingly, beverages, which were hit by the significant excise tax hike on sugary drinks, actually surged by 18.1 percent this year so far, compared to a measly 1.2-percent growth last year. (A naughty thought: have people turned from eating to drinking?)

Chemicals manufacturing, another significant segment of the sector contributing 10 percent of its output, fell by 3.8 percent, a reversal from last year’s 4.2-percent growth. As much of its products are exported, this could be a reflection of the overall export slowdown we suffered (from 19.2 percent last year to 11.3 percent). Electronic products, another major segment making up 20 percent of manufacturing, actually speeded up growth.

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I haven’t touched on services, but that sector managed to hold on to its 6.8-percent cumulative growth last year. Next time, we’ll look at the spending side, to understand the slowdown even more.

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TAGS: Economic Slowdown, GDP growth, opinion, Philippines
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