The Philippine economy’s growth in the first three months of the year was the fastest among our Asean peers at 5.7 percent year-on-year, matched only by Vietnam. Thailand had the weakest growth at 1.5 percent, while Singapore, Malaysia, and Indonesia grew by 2.7, 4.2, and 5.1 percent, respectively. While this is good news, the quantity of growth should never be enough. Quality and sustainability of growth are equally important, and these call for continued structural reforms to achieve an inclusive economy where broad participation leads to wide benefits, so that as the economy grows, poverty and inequality fall.
Closer examination of the latest GDP data led me to three key observations:
First, agriculture remains the biggest drag on the economy. The farm, fishery, and forestry sectors barely grew with hardly any year-on-year improvement, at 0.4 percent. Quarter-on-quarter growth (that is, from the last quarter of 2023 to the first quarter of 2024) was in fact negative at -0.3 percent (or an annualized rate of -1.2 percent), which means that farm and fisheries output actually fell from the previous quarter. Rice (palay) production was a major casualty with a 2-percent drop, along with banana, coconut, cassava, livestock, and fisheries, which also suffered significant declines. On the other hand, significant growth in sugarcane, coffee, poultry, and eggs helped dampen the fall.
Climate had much to do with the overall contraction, with rain and water supplies compromised by another El Niño episode this year, which Indonesia and Thailand also blame for a similar fall in their agriculture production. Still, Malaysia and Vietnam managed to expand farm output in the same period by 1.6 and 2.8 percent, respectively, suggesting better success at achieving climate-resilient farm sectors. With climate change clearly manifest for some time now, it is incumbent upon our agricultural planners to pursue wide promotion of climate-smart farming techniques and technologies to secure our food supplies over the long term. Vietnam has been way ahead of us on this.
Second, manufacturing has rebounded from its sluggish 2023 performance. This is significant good news. The sector grew overall at a much healthier pace of 4.5 percent, after a near-stagnant 1.3 percent full-year growth in 2023. Boosting this was food manufacturing, which accounts for over half of the sector’s output; along with chemicals and chemical products; computer, electronic and optical products; and petroleum refining. Even so, losers (12) dominated gainers (10) among the list of manufacturing industries in the first quarter, notable of which are basic metals, beverages, and transport equipment. The last saw a reversal of fortunes after two successive years of double-digit growth.
Manufacturing growth is crucial, as the best quality jobs for our large number of unskilled and semi-skilled workers come from the sector. Manufacturing grew faster than the overall economy in 2011-2016, a period marked by a significant rise in the proportion of wage and salary jobs in our labor market (as against informal self-employment and unpaid family labor). It was also when we saw the steepest poverty reduction within a three-year interval between two Family Income and Expenditure Surveys, with poverty incidence falling more than three percentage points from 25.2 percent in 2012 to 21.6 percent in 2015. It is for this reason that industrialization has historically been a critical phase in any country’s development story, and it remains a challenge for us to attain the more than 20 percent manufacturing contribution to GDP (currently at less than 18 percent) to be considered industrialized. It is a critical pathway to inclusive growth.
Third, fixed investment has slowed down severely to become a drag rather than a booster of our economy. After three years of growing annually at 9-10 percent, its year-on-year growth in the first quarter was a mere 2.8 percent, much slower than the economy’s overall growth. This number refers to total fixed investments in the economy, whether foreign or domestic, public or private. The data clearly show government’s deliberate effort to boost this with a double-digit push (12.4 percent) in government construction (against much slower 6.7 and 2.6 percent growth in construction activities by corporations and households). But investment in durable equipment even fell 4.8 percent, and agricultural investments saw zero growth.
Our economy cannot sustain growth from consumer spending alone. We must address once and for all the needless hurdles deterring Filipinos and foreigners alike from creating more jobs in our economy. The biggest hurdle has always been dysfunctional politics and governance, which make doing business here both costly and risky. And it will take the entire government and everyone in it to change their hearts and mindsets to overcome it.
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