Solid growth

The economic-growth data for the first quarter validated the idea that the Philippines is on solid footing. The numbers provided proof that the previous high growth rates were not mere flukes. The government attributed the 7.8-percent increase in the gross domestic product (GDP) to the strong performance of the manufacturing and construction sectors, aside from the usual increases in government and consumer spending.

The development on the production side is worth noting as it was broad-based: All major sectors contributed positively to growth during the period. Services expanded by 7 percent, industry by 10.9 percent, and agriculture by 3.3 percent. Economic Planning Secretary Arsenio Balisacan also pointed out that business confidence and consumer optimism had fueled the growth, thus banishing doubts cast on the 2012 figures as being due to base effects only. “The impressive performance of these sectors proves that the country is already reaping the benefits of strengthening priority sectors that are potential growth drivers and employment generators,” said Balisacan, who is also the director-general of the National Economic and Development Authority.

In the industry sector, mining grew 17 percent, a big jump compared to 1.7 percent and 2.8 percent in the first and last quarters of 2012. This growth occurred despite complaints about the absence of a new set of rules that will govern the sector, especially on the revenue-sharing scheme with the government. Those rules are expected to be passed by Congress this year. Manufacturing was also up 9.7 percent, higher than the 6 percent and 5.5 percent in the first and last quarters of 2012.

The real story was in the construction industry: It expanded a whopping 32.5 percent, following up on the robust 29.9-percent growth in the fourth quarter of 2012. Balisacan had reported that the sector’s healthy performance was initially led by the government’s infrastructure spending, but by the second half of 2012, private construction had begun to rebound.

The fact that construction is such a big boost to the economy with its high multiplier effect (it generates jobs, creates demand for steel, cement and eventually furniture/furnishings for houses and offices) should prompt the government to find ways to speed up its much-delayed flagship public-private partnership program, which was announced by President Aquino during his first State of the Nation Address in 2010, as well as the increased spending on tourism infrastructure.

Agriculture also contributed to the enviable first-quarter performance with a growth of 3.3 percent as the fisheries subsector bounced back from a series of contractions to expand by 5.5 percent. Again, this is one sector that needs all the financial and policy support from the government and the private sector.

On the demand side, capital formation or investments drove overall growth with its 47.7-percent expansion, surpassing the contribution of household consumption, which grew by 5.1 percent. “For the first time, expenditure in capital formation, including other private-sector investments such as on equipment, contributed more to growth than household consumption expenditure,” Balisacan pointed out.

Moving ahead, the government will be challenged by a very uncertain external environment. While the United States seems to be recovering, Europe looks like it’s going deeper into recession, Japan remains shaky and China’s economy appears to be slowing down.

The Philippines can thus rely only on its internal strengths. As Balisacan had stressed, the investment-grade ratings from Fitch and Standard and Poor’s for the country would be an opportunity for businessmen to expand their interests and generate more employment: “We remain positive in our outlook and we will translate this into positive action to achieve inclusive growth. We hope that the private sector will maintain a positive outlook as well, and translate this into a greater participation in the growth process.”

Among Asian countries, the Philippines had the fastest-growing economy, outperforming that of China (7.7 percent), Indonesia (6 percent), Thailand (5.3 percent), and Vietnam (4.9 percent). This phenomenal growth is something that the Aquino administration can take pride in, but as has been repeated many times before, the biggest and continuing challenge is for the majority of Filipinos to benefit from it. To make growth inclusive, poverty has to be structurally addressed, and the huge income inequality narrowed.