Drivers and dampeners
What propelled the economy in 2013? What hampered it? What will drive the economy in 2014, and what will dampen it? What do these imply, especially on how the benefits from economic growth are felt all around?
In search of the answers, I took a closer look at the full year 2013 data on the country’s gross domestic product (GDP) and its components. As a measure of total production in the economy, GDP may be viewed from either the sectoral production (supply) side, or from the expenditures (demand) side. What were the growth leaders and laggards, when examined from either perspective?
From the production side, last year’s 7.2-percent overall growth in the economy was led by industry—composed of manufacturing, mining and quarrying, utilities and construction—with an expansion of 9.5 percent over the previous year. This is quite welcome, as the industrial development we missed in past years, when services became the dominant driver, may finally be catching up. Services—composed of trade, transport, communication, storage, finance, real estate, private services and government services—posted 7.1-percent growth overall, consistent with its normal performance over the past years. The agriculture, fishery and forestry sector was the laggard with 1.1-percent growth, or only 0.9 percent if one looks at agriculture alone.
There are two reasons why this should worry us. First, economic growth is bypassing our rural dwellers. These are the ones most dominantly dependent on agriculture for their livelihoods and incomes, and from whom come 70 percent of the country’s poor. Second, our food security is likely being compromised. With the expansion in farm output trailing well behind our population growth (currently estimated at 1.7 percent),
expansion in farm output has failed to catch up with the growth in our population, implying less for every Filipino on average.
Drilling further down on industrial growth, stellar performers in manufacturing have been chemical products (97.8 percent), basic metal industries (51.1 percent), furniture and fixtures (41.8 percent), footwear and leather products (11.9 percent), and radio, TV and communication equipment (10.2 percent). All except footwear had improved further on their previous year’s growth performance. Copper mining also posted a hefty growth of 20.6 percent. Construction, especially public construction (21.6 percent), was also a key growth driver, with private construction (7.9 percent) also outpacing overall growth.
In services, the growth leaders were real estate (17.9 percent) and financial services (12.4 percent). It’s striking that the banks and insurance companies, together with real estate firms, have consistently enjoyed among the fastest growth rates in the economy over the years, and even more so in the past year. Little wonder that our economic growth has brought disproportionate benefits to the wealthiest among us, particularly those deriving wealth from these booming industries. At the other end are the farmers, whose sector is seemingly left behind in the otherwise dynamic growth of the economy. Agriculture was dragged down by significant contractions in coffee (-11.6 percent), sugarcane (-7.9 percent), mango (-6.3 percent) and coconut (-3.5 percent). The last is particularly disturbing, given that coconut farmers have long been known to comprise the poorest among us, together with fishers.
On the demand side, I take satisfaction in seeing investment spending continue to lead the growth, as fixed investment (capital formation) grew by 11.7 percent, further improving on the previous year’s 10.4 percent. In particular, investments in durable equipment grew by 14.4 percent, led by aircraft (271.2 percent), reflecting ongoing fleet expansions by our air carriers. A large jump in spending on sugar milling machinery (79.8 percent, after an even larger 143.5-percent growth in 2012) suggests that the sugar industry is gearing for increased competition under the Asean Economic Community by 2016. Investments in office equipment (23.2 percent), other miscellaneous durable equipment (30.9 percent) and other general industrial machinery (18.9 percent) also reflect continuing broad expansion in industrial capacity.
What would drive further growth in 2014? First, major public investments in new infrastructure are in the offing, including the much-delayed and much-awaited public-private partnership projects. Apart from major road projects, these include construction and improvement of airports all over the country. Major road repairs in Metro Manila are also lined up for the year, and are anticipated by motorists to turn already congested city traffic into a nightmare. Second, major private investments, both domestic and foreign, are due to come in, following a more than doubling (115 percent) in approved foreign investments last year. Thus, the investment-led growth we’ve been seeing will likely continue, while household consumption spending continues robust expansion propelled by overseas remittances and growing domestic incomes. Third, exports appear to be on a rebound, especially with the sustained recovery of the US economy, and the measly 0.8-percent growth this year is likely to return to a more normal growth pace in 2014.
As for agriculture, it will continue to be our growth dampener if we stubbornly insist on doing the same things that never got us anywhere, over and over. Drastic changes in the way we manage the sector have long been overdue—but that will have to be the subject of another column.
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