Fat Free Econ 49: Growth Amid Storms

* This is my article yesterday in interaksyon.com, TV5's news portal.
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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.

Fat-Free Econ 37: PH GDP Growth 2012

* This is my article yesterday in TV5's news portal.

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In November 30, 2012, this column made a rather bold statement about the economy for the fourth quarter of that year.

The National Statistical Coordination Board (NSCB) yesterday announced that fourth-quarter growth came in at 6.8 percent, or just 0.2 percent shy of the forecast.

It was not an “ambitious” figure to target for the fourth quarter. For one, the growth momentum for the first three quarters of the year was already there: 6.3 percent in the first quarter, 6 percent in the second, and 7.1 percent in the third (later revised upwards to 7.2 percent). Second, the growth momentum in Asia’s emerging economies is still there. For instance, growth rates in the third-quarter were 7.7 percent in China, 6.2 percent in Indonesia, 5.3 percent in India, 5.2 percent in Malaysia, 4.7 percent in Vietnam and 3.3 percent in Thailand.

This is one advantage of being a neighbor to faster growing economies. Even if political and economic governance in the home country is not that good, overall economic activity will be pulled up by the more dynamic neighbors through regional trade, investments and tourism. In the case of the Philippines and its neighbors in North and Southeast Asia, they seem to be pulling each other up.

The phenomenal economic expansion of the planet’s two most populous countries -- China and India, with a combined 2.5 billion population -- is a good example of how they have helped expand demand for goods and services exported by their neighbors in the region. Below are two tables showing the phenomenal economic expansion of many Asian emerging economies in just two decades. Purchasing power parity (PPP) valuation of gross domestic product (GDP) is used instead of the usual nominal GDP to correct for hyper valuation of goods and services in many rich countries.

Source: IMF, World Economic Outlook, October 2012 Database 

In just two decades, China’s economy has expanded 10.3 times from its 1992 level, while India has expanded 5.6 times over the same period. In contrast, the rich European and US economies have expanded only between 2-2.5 times.

The table below shows the expansion of a bigger set of Asian emerging economies:

There are several important implications of the above numbers.

One, many Asian economies increasingly are becoming the “growth anchor” for the rest of the world economy. Expanding wealth and consumer purchasing capacity in Asia creates additional demand for other economies' goods and services exports that may balance between anemic growth and stagnation, if not contraction.

Two, big population is generally an asset as the economy has more consumers, more workers and more entrepreneurs. This is clear in the cases of Japan Indonesia, India and China, countries with populations of 127 million, almost 250 million, 1.2 billion and 1.3 billion, respectively. Among the reasons often cited by investors who put their money here is that the Philippines has a big and young population that can easily be trained with new and changing skills. 

Three, intra-Asian merchandise trade and people mobility greatly help integrate their economies and in the process, pull each other up economically.

So in the absence of really globally or regionally disruptive events like war or huge fiscal collapse of the major European economies, the “default mode” is continued expansion of many Asian emerging economies like the Philippines.

More business-friendly government policies and bureaucracies will help the country sustain and even surpass current economic performance.

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See also:
Fat-Free Econ 33: Institutions and Why Governments Fail, December 09, 2012

Fat-Free Econ 34: Rise in Unemployment Rate Not Exactly Bad, December 20, 2012

Fat-Free Econ 35: World's 25 Largest Economies in 2012, January 02, 2013

Fat-Free Econ 36: Peso Appreciation, Growth and Less Government, January 06, 2013