Monday, 11 May 2009

Where Philippine economic growth comes from

No Free Lunch : Not just any growth
Cielito Habito
INQUIRER
http://business.inquirer.net/money/columns/view/20090510-204242/Not-just-any-growth

MANILA, Philippines—Hardly anybody believes that our economy will not continue growing this year. That’s good news. Even as Singapore and Thailand have already suffered severe contractions, we are among those in East Asia still expected to grow positively, albeit much more slowly. People may differ on how much they expect the Philippine economy to grow this year, but almost everyone expects some growth. And most still expect the economy to grow faster than our population does (which is around 2 percent a year), which means that average income per person will still grow.

So where will this growth come from?

Internal demand

One thing is certain: Foreign demand will not drive our growth this year. Our export figures have been dismal lately, at double-digit negative growth rates since at least the middle of last year, and we all know why. But unlike Singapore, Thailand and Japan where exports have been a dominant source of demand for their products, we export a much smaller part of our production. That is, the bulk of our production is still bought by Filipinos themselves—through household consumption spending, through spending by businesses for investment, and through government expenditures. And so far, we can expect such spending to continue growing enough to offset the dramatic fall in demand from cash-strapped foreigners—and hence still achieve positive overall growth this year.

Which sectors have been benefiting most from this internal demand that continues to grow? Let’s look at the latest available data to get a clearer picture of the situation. The latest production figures we have are for the last quarter of last year; data for the first quarter of 2009 are due for release at the end of this month still. The latest jobs data are as of January. Thus we still can’t be sure about more recent developments.

Filipinos less fed

Our domestic production of goods and services (GDP) grew by 4.5 percent on an annual basis as of the last quarter of last year. That pace of growth did not come from agriculture (including fisheries and forestry), as it grew by only 2.8 percent. Rather, it came from services, which grew 4.9 percent, and industry, which grew 5 percent. But the numbers suggest that agriculture at least grew fast enough to make up for population growth. In other words, farm production grew fast enough to ensure that each Filipinos’ potential share of the overall bibingka (as President Ramos used to fondly illustrate it) has not shrunk. Or did it?

A closer look at the detailed data shows that production of key food crops actually fell. Rice and corn dropped by 2.2 and 4.6 percent respectively. Coconut was also down 0.3 percent. Livestock other than poultry grew only 1.4 percent (thus less than population growth). It was fisheries (11.1 percent), bananas (5.2 percent), poultry (4.5 percent) and forestry (5.3 percent) that gave the boost to make the overall agriculture, fishery and forestry sector grow 2.8 percent.

Note that bananas and fishery products are mostly exported. In the case of the latter, the seemingly impressive growth was really driven by tuna exports, which grew a whopping 79.2 percent (238.3 percent in the previous quarter). We can’t say, then, that each Filipino at least had more fish and bananas to enjoy, even as they had less of rice, corn, coconut and other crops. In sum, agriculture has actually not grown enough to feed each Filipino at the same level as before.

Narrow base

The details of the industry and services sector growth also give a more sobering picture. In industry—composed of mining/quarrying, manufacturing, construction and utilities—the fast growers are just mining/quarrying (12.1 percent) and construction (13.1 percent). But as it turns out, the seemingly impressive mining growth came almost entirely from the Galoc oil field in Palawan (crude oil is classified under mining). Copper, gold, chromium and the rest of metallic minerals all dropped steeply, reflecting the plummeting demand from China. Construction growth came primarily from private construction (17.8 percent vs government’s 3.2 percent), driven by the still brisk growth in real estate (16.7 percent). As we have explained before, this is due to people shifting their wealth from shaky financial assets to more secure real properties. This narrow base for industry’s overall 5-percent growth explains why the sector had actually still lost 121,000 jobs as of January—not exactly the kind of growth we’d like to see.

We still gained a total of 565,000 jobs in the year as of January, but this is only about half of what we need to catch up with new jobseekers every year. The new jobs came almost entirely from services, which by all indications were mostly in the form of informal sector (aka “underground economy”) jobs.

This pattern of growth achieved in the past year should be a fairly reliable indicator of the kind of growth we will achieve this year. It is comforting to know our economy will still keep on growing as a whole. But clearly, more needs to be done so that the benefits of the growth will be shared more widely. We will have to return to that in succeeding columns.

Comments welcome at chabito@ateneo.edu

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