Is 6.4-percent growth sustainable?
The country’s Gross Domestic Product or total output of goods and services grew by 6.4 percent in the first quarter of 2012 compared to the upwardly revised 4.9-percent growth in the same period last year.
On the supply side, growth came mainly from the from the revitalized services sector, which jumped by 8.5 percent in the first quarter. Except for public administration and defense and compulsory social security, all the services subsectors grew by more than the overall GDP growth. The other services subsector led with 10.5-percent growth, followed by transport, storage and communication (9.0 percent), trade (8.9 percent), financial intermediation (8.8 percent) and real estate renting and business activity (7.9 percent), which now includes Business Process Outsourcing (BPO).
The industry sector grew only by 4.9 percent due to the decline in the mining and quarrying subsector (-11 percent) and lackluster performance of the construction subsector (3.6 percent) in contrast to electricity, gas and water and manufacturing which grew faster by 8.0 percent and 5.7 percent, respectively.
Overall, the agriculture, forestry, hunting and fishing sector grew much slower also at 1.0 percent as the 2.1-percent growth in agriculture and forestry was pulled down by the 3.8-percent decline in fishing. Within agriculture, the major contributors to growth were poultry, livestock, corn and coconut including copra. Sugarcane, palay, mango, and cassava production were in decline.
On the demand side, household spending continued to expand in the first quarter of 2012 by 6.6 percent from 5.9 percent last year. Expenditures for food which accounted for 40.5 percent of the sector grew by 6.3 percent from 7.3 percent registered in 2011. Also recording higher growths compared to the previous year were the expenditures for miscellaneous goods and services, 16.4 percent from 9.3 percent, restaurants and hotels (10.4 percent from 4.2 percent), health (10.6 percent from 7.7 percent), recreation and culture (22.3 percent from negative 3.7 percent) and communication (10.7 percent from 1.6 percent). Posting decelerating growth were alcohol, beverage and tobacco (0.8 percent from a growth of 1.1 percent), education (4.4 percent from 4.5 percent) and clothing and footwear (2.5 percent from 5.8 percent).
In the first quarter, government final consumption expenditures which declined by 15.8 percent in 2011 finally jumped by 24.0 percent as the government continued spending on a number of social protection programs released funds early during the quarter for most programs and projects lodged in the budget of various departments. If I may say so, it must also have benefited from government stimulus towards the end of last year. Its impact was not felt before the year ended.
Against the surge in government final consumption expenditures, however, was the disappointing performance on capital formation which suffered a 23.5-percent cut.
Total exports of goods and service grew by 7.9 percent while imports decline by 2.9 percent. It should be noted that when exports are up and exports down, the improvement in net export figures will contribute to higher GDP and this partly explains for the rather unexpectedly high growth rate achieved by the country in the first quarter. The catch is that declining or lower imports in any quarter may not augur well for industrial production in the following quarters given that most of our industries also depend on imported raw materials and semi-finished products for the their production which is also geared towards exports.
It is interesting to see, finally, that despite the lower forecasts made for the country this year by the World Bank, International Monetary Fund. Asian Development Bank and other international bodies, the country managed to pull a surprise by surpassing the growth rates of our neigbors, except China which grew by 8.1 percent.
The new Socioeconomic Planning Secretary, Dr. Arsenio Balisacan, in his statement on the first-quarter performance of the Philippine economy mentioned that compared with that of the Association of Southeast Asian Nations, the Philippine economic performance was above the preliminary average growth (3.7 percent), growing faster than Indonesia (6.3 percent), Vietnam (4.0 percent), Singapore (1.6 percent ) and Thailand (0.3 percent). Growth of other neighboring countries has also been slower, according to Balisacan: Hong Kong (0.4 percent) and Republic of Korea (2.8 percent ) and Japan (2.8 percent).
The question remains, however: Is the 6.4-percent first quarter growth sustainable for the rest of the year? Not so if the decline in capital formation or investments would not reverse, especially when the frontloading of government expenditures in the first quarter is completed.
Furthermore, the increase in household final consumption expenditures that we saw in the first quarter may not be good in the long run as it also means lower savings and investment. An expanding services sector, meanwhile, also means by-passing again our industry sector that we know is the real pillar of long-run growth and prosperity.
