More action please

As reported by the government’s National Statistical Coordination Board a couple of days ago, total final household and government consumption expenditure grew by 6.7 percent and 5.8 percent, respectively, in real terms in the fourth quarter of 2011, but overall, the country’s gross domestic product (GDP) or total output of goods and services in final form managed to grow only by 3.7 percent in the same quarter. Given that the economy also grew on average by 3.7 percent in the first three quarters of last year, this puts the 2011 GDP annual growth at the same rate. This is not encouraging because it does not even reach the low end of the adjusted 4.5-percent to 5.5-percent growth target of the government for the year. What happened?

On the demand side, the most common answer is the slowness with which the government spent for programs or projects. But more than this really is the fall in exports and investments that came with the slowdown of the global economy. In the last quarter, investments and exports went down by 5.5 percent and 4.3 percent, respectively.

Like household and government expenditures, investments and exports form part of the four components of aggregate demand that determine how much will be produced by the economy in the short run. Lacking demand, the country’s productive machine could not produce more than necessary. In fact, less was actually produced than demanded with the difference being provided by drawing from inventories. As the NSCB report shows, inventories declined by 59.7 percent in the fourth quarter.

Why the fall in investments? The answer is simple. Investments are made on expectation of future returns which hopefully should cover both fixed and variable costs over time. In a receding global economy, which became clear in the middle of last year, the animal spirit to invest could only recede, too, thus causing investments to fall. As for exports, they fell because a receding global economy also lessens the demand for goods and services that the different countries of the world buy from and sell to one another.

The total output of goods and services produced by a nation also depends on its supply of inputs and level of technology. Given free competition and desire for profit, no input will be left unused as long as prices are flexible. This is true in the long run. In the short run, however, many factors could derail production such as uncooperative weather and other works of nature.

As we can see from the NSCB report, the agriculture, fishery and forestry sector which depends so much on the workings of nature for its ability to produce, suffered a 2.5-percent cut in output. Thanks or no thanks to crop production which reported a 2.2-percent cut in output due mostly to the 9.7-percent and 8.7-percent fall in corn and palay production, respectively. Output from  fishery also declined by 4.2 percent and although forestry reported a 34.7-percent increase in output, it did not matter much also because fishery has a very limited contribution to the total output of agriculture, fishery and forestry sector.

As usual, the services sector, which now account for about half of the country’s GDP, led the economy by growing 5.9 percent in the fourth quarter but the industry sector, which accounts for about a third of the GDP, grew only by 2.5 percent.

Overall in real terms or after adjusting for inflation, for the whole of 2011 final household consumption expenditure grew by 6.1 percent but final government consumption expenditure registered a negative 0.7 percent growth. Investment still grew by 11.1 percent overall for the year even with the decline in construction activity since investments were higher early in the year. Exports of goods and services, however, also fell by 3.8 percent while imports still grew by 1.9 percent.

What does last year’s feeble economic growth speak of the overall welfare of each of the Filipino people? On average, the welfare of the individual Filipinos should have gone up in 2011 by what remains of the 3.7 percent in GDP growth after deducting for the 2.0-percent growth in our population. But that is true only if rich and poor alike equally share the net increase in our GDP or if the income of the poor grew faster than that of the rich. Has this been the case in the country?

It might be so if we believe the Social Weather Station which says in their last survey that less than half of the Filipinos considered themselves poor or living in poverty compared with more than half in the past. The same improvement may be collaborated by the National Statistic Office’s October 2011 survey which shows a decrease in the unemployment rate compared to the same period in 2010. But what is this latest SWS report which says that from its Dec. 3 to Dec. 7, 2011 survey, the proportion of families experiencing involuntary hunger at least once in the past three months reached 22.5 percent, or an estimated 4.5 million families and that the latest hunger rate is one point higher than 21.5 percent (est. 4.1 million families) in the previous quarter?

Well, does a one-percent percentage point difference really matter much? More than a fifth of our people still suffer hunger sometimes on account of their poverty. How do we fight this? This government says by rapid, sustainable and inclusive growth.  Five words, okay, but more action please, because it is not fun to see many people out of work and in poverty.