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MANILA - By storms, we refer not only to natural typhoons
and widespread flooding, but also to political storms that hounded both the
Legislative and Executive branches due to the prolonged pork barrel scandal in
the third quarter this year. It remains surprising therefore that the
Philippine economy was able to grow by seven percent in the third
quarter.
In the first three quarters of this year, the
Philippines' gross domestic product (GDP) has grown so far by 7.4 percent.
Gross national income (GNI) -- previously called gross national product (GNP)
and includes income by Filipino nationals abroad minus income by foreigners in
the country -- grew by 7.3. Net primary income (NPI) or net factor income from
abroad (NFIA) grew by 6.7 percent.
Growth in per capita GDP, GNI and household final
consumption expenditure (HFCE) are also shown below. All tables were taken from
the National Statistical Coordination Board (NSCB) presentation titled Performance
of the Philippine Economy, Third Quarter 2013, except the table from The
Economist.
Compared to the growth of other emerging economies,
Philippine growth figures are indeed high, next only to China.
And if compared to the industrialized countries, the
Philippines’ GDP growth figures should be an object of envy of many European
economies. The Euro area is projected to sustain its economic contraction by an
estimated 0.4 percent this year, according to The Economist’s poll.
Japan and the US are expected to have modest growth of 1.9 and 1.6 percent,
respectively.
Source: The
Economist, November 23, 2013
Where did fast growth come from?
Computation of GDP or flow of goods and services yearly
is made through the supply side (major industries) and the demand side (major
consumers) of the economy. Let us take the supply side growth contributors
first.
Agriculture, hunting, fishery and forestry (AHFF) showed
a near-flat performance with just 0.3 percent growth last quarter over its year
ago level. Huge growth was contributed by the industry and services sectors,
growing by 8.2 and 7.5 percent, respectively.
But in terms of share to total GDP, the services sector
is the biggest, followed by industry. So that in terms of percentage
contribution to the seven percent GDP growth, more than half of it, 4.4
percent, came from the services sector.
In services, double-digit growth of 12 percent was contributed by financial Intermediation (banks, stock market, foreign exchange trading, mutual funds, etc.) and real estate. The latter is also the biggest contributor to services, contributing one third of its total output, followed by trade and financial intermediation.
Aside from the above measured growth by industry or by sector and sub-sectors, there are also other indicators that support such growth data below.
Transportation and communication showed modest to high growth, like mobile phone subscription and broadband subscription, growing between 8-9 percent.
The double-digit growth of real estate was supported by high sales growth, and high tourist/visitor arrivals, meaning high demand for hotel rooms and vacation houses.
The second way to compute GDP growth is through the
demand side. The major consumers are household final consumption expenditure
(HFCE), government final consumption expenditure (GFCE) and investments or
durable equipment.
The two biggest contributors to GDP are HCFE (about
two-thirds of the total) and durable equipment or investments (nearly a third).
The important lessons on why the Philippine economy was
able to sustain the seven percent GDP growth are the following:
One, on the supply side, the agriculture, fishery and
forestry sector needs particular market dynamism. It is here where there is
large government spending -- through the Departments of Agriculture (DA),
Agrarian Reform (DAR), Environment and Natural Resources (DENR), Public Works
and Highways (DPWH), state universities and colleges (SUCs), local government
units (LGUs) and pork barrel spending by legislators -- and yet growth remains
anemic. While crop damage due to typhoons and flooding is indeed an important
factor, it does not explain much because growth figures are computed on
year-on-year basis, i.e., July-August period against the same three months of
the previous year.
Dynamism in the industry and services sectors should help
infect the agriculture sector. A move towards more corporate farming that use
more science-based farming techniques should greatly help the sector.
Two, the services sector (both formal and informal) is an
important forward linkage of agriculture and industry. High output in poultry
and piggery farms for instance supports fast growth in the restaurants, fast
food, tourism, and food manufacturing sub-sectors. Thus, while production value
in the agriculture sector did not grow fast, high value-added in the services
sector saves the day, resulting in higher overall GDP growth.
Three, manufacturing remains the anchor sub-sector of
industry. Various policies -- taxation, labor, environmental, others -- that
can adversely affect this sector should be avoided as much as possible.
Four, tourism-related industries (real estate, hotels,
restaurants, air-land-sea transportation, communication) are harvesting the
benefits of rising tourist arrivals, as well as Filipino tourists.
Five, on the demand side, our big population is an
important factor why HFCE remains the biggest contributor to GDP growth. More
people means more entrepreneurs and workers, more producers and consumers.
Six, continued and sustained positive news about the
economic performance of the country despite political storms and natural
typhoons, have contributed to improved and higher investments in the country,
captured by high growth and high contribution to GDP of durable equipment.
Finally, the government must sustain market-oriented
reforms that attract both local and foreign entrepreneurs to invest in the
country. Things remain bad or at least not so optimistic abroad, both in North
America and Europe. Emerging markets in Asia like the Philippines continue to
attract the attention of those entrepreneurs abroad who are thinking of jumping
ship.
See also:
Fat-Free Econ 37: PH GDP Growth 2012, February 02, 2013
Fat-Free Econ 38: Jobless Growth vs. Jobless Non-Growth, February 12, 2012
Fat Free Econ 43: On the Philippines' Fast Economic Growth, June 14, 2013Fat Free Econ 46: On Pork Barrel Aboition, August 25, 2013
Fat Free Econ 47: Pork Scam vs. Public Debt Scam, September 07, 2013
Fat Free Econ 48: Jobs, Taxes and the World Bank, September 15, 2013
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