Quest for inclusive growth

The economic growth figures released by the government last week validated the resilience of the Philippine economy in the face of global uncertainties.

The country’s GDP grew 5.9 percent in the second quarter of 2012, faster than most Asian economies. This was above the average 4.7 percent in the Association of Southeast Asian Nations (Asean) and better than Malaysia’s 5.4 percent, Thailand’s 4.2 percent, Vietnam’s 4.4 percent, and Singapore’s 2 percent. In Asia, only China’s GDP growth rate of 7 percent and oil-rich Indonesia’s 6.4 percent outperformed the Philippines’ in the second quarter.

The Aquino administration credited the growth to increased public spending on infrastructure (including that for the conditional cash transfer or CCT program), low inflation, improving exports, rising tourist arrivals and the billions of dollars sent home by the more than 10 million Filipinos working abroad.

Socioeconomic Planning Secretary Arsenio Balisacan was specially ecstatic about the 2.3-percent expansion in capital formation in the second quarter as against the decline of 10.5 percent a year ago, saying the figures strongly suggested that investments, which had been negative in previous quarters, have finally bottomed out.

That’s the government’s view of the GDP figures for the second quarter.

Not to downplay the economic performance for the second quarter, but another perspective saw the growth rate slowing down much more sharply than expected. The economy expanded by just 0.2 percent in the April-June period from the first quarter of the year, dragged lower by declining electronics exports (the country’s major dollar-earner), a deteriorating industrial production and feeble growth in agriculture and the service sector.

Economists have pointed out that the second-quarter growth rate was, in fact, the weakest since the first quarter of 2009, a testament to the mounting pressure on the government to boost public spending and for the Bangko Sentral ng Pilipinas to relax monetary policy further to shore up economic activity as the global crisis drags on.

They said the economy could have contracted were it not for a jump in consumer spending, thanks to the dollars sent home by overseas Filipinos. Household consumption grew 1.4 percent in the second quarter, speeding up from just 0.9 percent in the first quarter.

Going forward, analysts are of the consensus that despite the prolonged global crunch, the Philippines and most of its neighbors are in a better position to ride out the turmoil due to the spending power of their big population and the leeway for increased government expenditures. The Aquino administration’s budget deficit in the first seven months was only P73.7 billion, or about a quarter of its full-year deficit target of P279 billion. This gives the government enough latitude to increase spending for the rest of the year.

The journey from hereon will not be without problems. Economists have noted that exports, which account for about 40 percent of GDP, will remain the biggest question mark for the economy in the coming months. Export growth fell to 4.2 percent in June for the third consecutive month as global demand declined, with electronics shipments down 14.6 percent. Industrial output was also down 2.4 percent in the second quarter compared with a growth of 3.8 percent in the first three months. Agriculture and the services sector likewise posted slower expansions—1.2 percent and 1.5 percent, respectively. The farm sector accounts for about a fifth of the economy and the weather disturbances that hit the country in July and August could put further pressure on agricultural production.

The government is aware of the difficult task ahead and the associated risks to sustaining economic growth. But it is optimistic that the resiliency of the economy, as reflected by the strong GDP performance in the two quarters of 2012, will not dissipate in the succeeding quarters despite the uncertainties.

Balisacan puts it fittingly: “I see our growth keeping the momentum of the first two quarters. We just have to make sure that our fiscal house is always in order. We also have to address our shortcomings like infrastructure and the cost of doing business and ease of transacting with the government. There are high-hanging and low-hanging fruits that we can address to show that we are serious.”

He is calling on all sectors—public and private—to take advantage of the improved confidence among businessmen and consumers to lead the country to a level of growth that is not only high, but also inclusive—or growth that benefits all.