First-quarter slowdown
The new Aquino administration’s economic team targeted the economy to grow by 7 to 8 percent this year. In the first quarter, the National Statistical Coordination Board reports that the Gross Domestic Product (GDP) grew only by 4.9 percent. Many people are not pleased.
Let it be said that the 7 to 8 percent annual growth target was a fighting target set by the government at the start of the year.
The 2011 National Government Budget, when it was submitted to Congress by the new Aquino administration, based it on a greatly reduced 5.0 percent growth target for the year. That was right, because very few people really believed that the reported 7.3 percent growth of the economy last year was sustainable.
It was not sustainable for two reasons. One was that the reported 7.3 percent growth was a product more of the natural rebound and correction of the economy from the slowdown in 2008 and 2009 when the economy grew only by 3.8 percent and 1.1 percent, respectively. The second was the fact that 2010 was an election year where government and private money flooded the country and help pump-prime the economy.
One must note further that in average the Philippine economy grew by 4.6 percent in the decade-long Gloria Macapagal-Arroyo administration. The 4.9 percent recorded growth rate in only the third three months of the new Aquino administration does not look very bad, therefore.
It is not bad for two reasons also. One is that if there is any major change in the way the government operates under the new Aquino administration, its full impact on the economy will still have to be felt later. Changes in economic policies do not affect the economy immediately. The second reason is that the global economy today is no longer the same as the economy of the pre-2008 global recession years. With the many imbalances, global economic growth is expected to be slower in this decade than previously. Slower global economic growth means slower domestic economic growth, however, if the economy, like the Philippines, is highly connected with many other countries in the world through trade, investments and other flows. For example, when net export is negative, as in the Philippines for most of the years since the last world war, the result is also slower economic growth. This is more so in the first quarter when Philippine imports grew faster in real terms at 8.8 percent than exports, which grew only at 3.3 percent.
Let us see more what really happened to the economy in the first quarter.
On the demand side, in addition to the slump in net exports, the most noticeable thing that happened was the drastic fall ingovernment expenditures. Basing on 2000 prices, government final consumption expenditures went down by 17.2 percent in the first quarter. On the other hand, household final consumption expenditures grew by 4.9 percent, which just matches the GDP growth. Meanwhile, investment or capital formation grew by 37 percent. Had it not been for this, the economy would have gone kaput.
On the supply side, the most noticeable thing that happened in the first quarter was the 4.2 percent growth in agriculture.
Agriculture growth was negative in the same quarter last year. As in 2010, industry continues to grow faster in the first quarter at 7.2 percent. However, growth in the service sector, which accounted for more than half of the GDP, slowed down to 3.7 percent in the first quarter. In the pre-2008 global recession years, the services sector provided much of the impetus for growth of the Philippine economy.
The GDP measures what the country produced in final form with or without the help of the foreigners. The Gross National Income (GNI) measure all the total earnings of the country after deducting what the foreigners earned here and sent abroad and adding what the Filipinos earned from abroad and brought here. In the past decade, GNI growth was much faster than GDP growth because of the sizeable amount of dollars brought in by our OFWs. The crisis in the Middle East and North Africa now resulted in zero growth in our net income from abroad in the first quarter. Consequently, the GNI grew only by 3.6 percent in the first quarter of the years, down from 11.5 percent in the previous year.
Here is what the National Statistical Coordination Board further says of its first quarter economic report.
On a seasonally adjusted basis, GDP grew by 1.9 percent while GNI grew at a slower pace of 0.9 percent in the first quarter of 2011 due to the slowdown in NPI. With the rebound of palay, sugarcane and corn, the Agriculture, Hunting, Forestry and Fishery sector posted 0.9 percent growth in the first quarter from 1.8 percent in the fourth quarter of 2010. Industry grew by 3.2 percent from 2.1 percent gain in the previous quarter. The strong performance of the manufacturing sector ably supported by Mining & Quarrying and Construction negated the contraction of Electricity Gas and Water. Services sector likewise posted a 1.3 percent growth for the first quarter of 2010 after declining by 0.7 percent in the previous quarter, as all subsectors recorded positive growth except for Public Administration and Defense, which was affected by the underspending by the government.
With projected population reaching 95.1 million, per capita GDP grew by 2.9 percent while per capita GNI grew by 1.7 percent.
