GDP growth: Can it be sustained?

While the economy’s performance in the fourth quarter of 2011 as reported by the government on Monday (Jan. 30) showed a number of positive movements, the Aquino administration will have to push for more steady growth in certain critical sectors to better prepare the country for a widely feared global economic stagnation or even a recession this year. On a per capita basis, the growth in the 2011 overall economy lagged behind the rate of increase in the population size across the archipelago. Certainly, an economy that continues to be supported by consumer spending fuelled by money sent home by Filipinos working abroad but remains weak in generating investments and exports, as highlighted by the national income data released yesterday by the government, will most likely be vulnerable to both domestic and global shocks. As acknowledged by Socioeconomic Planning Secretary Cayetano Paderanga Jr. on Monday (Jan. 30) in explaining the 2011 economic record, “negative external developments” were a drag on the Philippine economy that already had been hit by adverse weather. There is no firm sign these risks would abate soon. Paderanga, who is concurrently director-general of the National Economic and Development Authority, the government is keeping an eye on the protracted financial crisis in Europe that could stall world economic recovery, as well as the fragile conditions in the United States and the risk of a slowdown in China—all with links to domestic economic activity in varying degrees. A notable highlight in fourth-quarter economic performance was the 5.9 percent surge in services, which came up with a 2011 full-year increase of 2.6 percent, according to the estimates by National Statistical Coordination Board. This sector’s big rise in the fourth quarter more than made up for the 2.5 percent contraction in agriculture during the typhoon-ravaged period. Emerging as the main driver of the economy, the services sector accounted for 56.5 percent—more than half—of the value of all goods and services produced domestically in the whole of 2011. Real estate and financial intermediation were the growth leaders in the services sector, although the biggest share of the overall services output value came from the trade and repair of motor vehicles, motorcycles, and personal and household goods. Durability will be tested Despite these bright spots, the question arises: Can this kind of growth be enough to result in improved living conditions for the vast majority of Filipinos? Can this growth be stable and sustainable? The marks of a lasting and inclusive growth, unfortunately, are not obvious in this week’s economic data. While a few growth spots may excite some, their durability will still be tested in the possible fallout from the projected stagnation in global economic growth in the coming months. However, there are options available that the Aquino administration may take to brace up the economy for such an eventuality. It is noteworthy that public spending is now set to be more aggressive as the government starts to address leakages, mainly losses from corruption and inefficient systems, in the past. Government consumption expenditure rose by 5.8 percent in the fourth quarter of 2011, reversing its lackluster performance in previous quarters. This improvement will have to be sustained to lay the ground for more sustainable growth in the future. A result of the depressed government spending was the 4.3 percent contraction in capital formation, a measure of the state’s investment that could have long-term favorable effects on the economy. Infrastructure development, through the much-awaited Private-Public Partnerships (PPPs) program that would marshall private investments, could finally take a brisk pace this year and liven up a range of ancillary industries. Also, along with the growth in the service industries, the government will really have to take a serious look at how manufacturing activities can be energized. At just 2.2 percent for the fourth quarter of 2011, growth in manufacturing may need to be spurred to encourage more employment opportunities and possibly more aggressive export initiatives. Meanwhile, while the fourth-quarter data project a mixed picture, another NSCB measure, the Leading Economic Indicator (LEI), has maintained an “upward course” for the first quarter of 2012. Latest LEI computations, said NSCB in an earlier report, show the index “in firmer positive territory,” which is described as “auguring well” for the domestic economy at least in the early months of 2012. Again, the question is whether this positive signals can be sustained.