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Thursday, August 17, 2017 27° Clouds and sun

The story behind PH’s 6.8 GDP growth

Published

By Andrew James Masigan

 

While much has been said  about  the Philippine’s  rise to become Asia’s fastest  growing economy,  the story beneath the numbers is far  more compelling. The  economy if fundamentally stronger today than it was in the last 60 years.

The Philippine economy expanded by 6.8 last year besting China’s 6.7% and Vietnam’s 6.2%.  Our growth should have  topped 7% if not for  the 1.1%  contraction in agriculture in the fourth quarter.

The  real good news is that is the industrial sector’s growth of  8% outpaced that of the  service sector at 7.5%.  This is significant because it shows   that government’s  Manufacturing Resurgence Program  (MRP) is beginning to gain traction and that our industrial base is  now widening after decades of contraction.   Industry   generates more high-quality  jobs than the  service sector.

Statistics further indicate that we are becoming less of a consumer driven economy and more an investment lead one.  Household and government consumption grew by just  6.9% and 8.3%, respectively, while  Fixed Capital Formation (FCF)  blazed forward  at 20.8%. For those unaware, FCF refers to the inputs that contribute towards making an economy more productive.  This includes investments in factories, machineries,  roads, ports, and the like.

Private investments have increased. This was complemented by the Duterte administration’s intentional  spending spree on  public works.  Interestingly, not even the President’s radical pronouncements  against western democracies doused investor confidence (expect in the 3rd quarter). This is because none of these pronouncements have become official policy.

With  capital formation on the rise,  the economy’s Incremental Capital Output Ratio (ICOR),  which refers to the relationship of capital and productivity, has also risen.   As of last year, Philippines registered  an ICOR ratio  that’s 3% greater  than the ASEAN average.  This tells us that a structural transformation is now happening within the economy.  So long as trends do not change, our trek towards industrialization will continue apace.

Government’s target is to grow by 6.5%-7.5% in 2017 and forward to 7%-8% from 2018 to 2022.  Most reputable economic think tanks  forecast growth of 6.5%for the next six years.   At this pace,  enough wealth  will be generated to  slash  poverty rates from 22% today to 14% in 2022.  However, it comes with the caveat that wealth be distributed equitably. This, unfortunately, is our Achilles heel.

See, two-thirds of economic activity is concentrated in three regions alone. NCR accounts  for the lion’s share of 36% of GDP, Calabarzon  17% and  Central Luzon 9%.  The rest of our fourteen regions split the  remaining 38%. Unless economic activity is diffused  to the countryside, economic inequality  will persist.  Hence, regional development is the  new battle cry of government.

While the general prognosis of the economy is favorable, it does not come without risks.  The slowdown of  China and the EU will continue to adversely  affect our exports.  Fortunately, OFW remittances and the new wave of remittances from Philippine multinational abroad have cushioned its effect on our  current account.

Other risks include potential protectionist foreign policies by the US and  geo-political risks borne out of China’s creeping invasion. On the domestic front, logistics bottlenecks due to the infrastructure gap, the vacuum left by the sweeping closure of mines and weather disturbances affecting agriculture could drag growth.

Achieving  economic growth  of 7% until 2022 is only the first  segment of our 25 year development plan.  There are two more trenches until the year 2040.  By then, we must have realized the national vision of  being,  and I quote, “a prosperous, predominantly middle-class society, where no one is poor. Filipinos will enjoy long and healthy lives, are smart and innovative, and will live in a high-trust society.

2016 was one step forward towards the realization of the national vision.  It sets the stage well.

****

Andrew is an economist, political analyst, and businessman. He is a 20-year veteran in the hospitality and tourism industry. For comments and reactions, e-mail andrew_rs6@yahoo.com. More of his business updates are available via his Facebook page (Andrew J. Masigan). Follow Andrew on Twitter @aj_masigan.

 

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  • affleap

    ‘NCR accounts for the lion’s share of 36% of GDP, Calabarzon 17% and Central Luzon 9%. The rest of our fourteen regions split the remaining 38%. Unless economic activity is diffused to the countryside, economic inequality will persist.’ this is the reason why Duterte opt to decentralize the system by going federal, in order to address this big disparity of economic activity distribution that only cater most for imperial Manila and the rest of Luzon.

    • Kel Mateo

      well to be fair NCR also had the highes per caipta GDRP, some regions just arent suitable for urban development, people just need to see that. and accept diversity some regions are better for agriculture some for tourism, trust me you don’t want to be like manila where it’s heavily polluted because there are so many cars and factories.
      whats needed is better inteconnectivity among the islands.and increasing the standard of living for the people at the provinces.

      • affleap

        It is not true that some regions are not suitable for urban development the problem lies in the system itself that everything has been centralized by the national government that all developments are concentrated in imperial Manila being the seat of government, at the expense of the undeveloped regions down south and the northern most part of Luzon. The national government control and monopolized almost everything from budget allocations, infrastructures, commercialization and industrialization, human resource opportunities, infrastructures, economic gateways, urban development, etc.instead of disseminating these economic activities and development to the countryside. If we go federal the economic development would be decentralized from the grip of the national government and eventually move the responsibility to the federal state LGU who would be empowered to spur economic progress within their state.

        • Kel Mateo

          look we run a free market economy where investors are free to build infrastructure in any region in the Philippines aslong as there is profit from doing so. the fact that they arent investing in alot in the visayas but mostly in Luzon and only some parts of Mindanao just means what i say is true.
          it just doesnt make sense to build there because its not profitable. just look at the damages done whenever a typhoon, earthquake hits or whenever abusayaff/npas do bombings infrastructure is not cheap.

        • Kel Mateo

          how would you know federalism would spur economic progress within their state when regions don’t even generate enough capital to build infrastructure? look at the site where you got your stats from a lot of regions only generated 0.03-0.1% of the gdp where do you think they would get the money?

          • affleap

            If there’s a will there’s a way, we have a lot of economic managers to do that, so it is not a problem.

          • Kel Mateo

            haha thats pretty optimistic but their are obviously risks there if the region is mismanaged build malls on top for farmland, build parking on lots on tourism spots not to mentions region governors might get swindled by investors aswell, not to mention i don’t have alot of faith on filipino leadership and management, just look at how many corrupt politicians we have, we are compromised down to the barangay level, and you want to add another layer of leadership in the form of state governors? haha thats insanity.

    • Xyerxis

      Uh, Federal means each state is economically independent, which means NCR Wont be able to Prop up the poorer regions.

      Also, just want to point out that Mindanao is poor because of terrorism. Investors don’t want instability and chaos. So, I say, figure out your sh*t first before you accuse “Imperial Manila” of being the reason why you don’t prosper. Thank you.

  • Viva Manila

    Is that a photo of Bobby Andrews?

  • dodzcasera

    Mindanao has been generally neglected by past administrations, and that accounts why many of its regions are some of the poorest in the country. Just build some quality infrastructure in Mindanao like roads, bridges, railways and adequate power supply and its people will take care of themselves being more productive.

  • underthePhilippineSun

    “The economy if fundamentally stronger today than it was in the last 60 years.”…

    with the US$ to PHP peso rate in the P50 level, it is HARD TO BELIEVE on the above quoted statement… only FOOLS can believe that…

    • LF Trader

      forex, like the stock market, DO NOT reflect the REAL economic situation MAINLY because, a lot of institutional holders and retailers, are there for the speculation MORE THAN the fundamental aspect of an economy.

      Japan has a 100+ yen to a 1 dollar conversion, yet we think of them as more advanced and fundamentally sound than the philippines.

      Argentina on the other hand has a 15++ peso to a 1 dollar conversion, yet we can’t say that they are more progressive than Japan. In fact, they are having some fundamental structural problems in their economy.

      So next time, if you here some news about forex or stock market, do not immediately believe the hype, ONLY FOOLS look at these two as their only basis to determine whether a country is progressive or not.

      • underthePhilippineSun

        your statements maybe informative, but LACKING COHERENCE… . japan is an EXPORTING country while PH IS NOT… millions of OFW’s are generating dollars for the country and that my friend is one of the main source of the US dollars that we have in our country… which, in turn, is a big contribution for development and growth…

        thank you for your advice but i think NO THANKS at all… i bet you are ONE of THOSE FOOLS believing what this administration disseminates…

        keeping FOOLING yourself and one day, REALITY will bite back..

        • Xyerxis

          We are an exporting country. What do we export? Coconuts and Diodes.

          • Xyerxis

            Maybe its time we switch from exporting coconuts to exporting saffron, or anything of higher value that coconuts. Maybe cacao or rubber. Coconuts,copras are very cheap in the market, you know? Maybe We should Try planting opium and coca.lol. for the drug addicts. we’ll be rich

      • Xyerxis

        In my understanding Stock Market performances is not included the the overall GDP of a country.

    • grapesofwrath

      LOL. Only fools think currency exchange rate is the basis for an economy’s strength. If that’s the case, then Japan and Korea should be considered very weak economies. What a moron!

      • underthePhilippineSun

        when an MOR0N thinks Philippines is an EXPORTING country like japan and korea….. best suits you… LOL…

      • Handiong

        You’re the moron. Currencies cannot be compared based on their numerical exchange rates in relation to the US dollar. JPY113.76:USD1.00 and KRW1,145.34:USD1.00 have no relevance to PHP49.9076:USD1.00. PHP49.9076 is the price for USD1.00. If it is rising, it means that the PHP is losing value. If it is decreasing, it means that the PHP is gaining value or strength. When the PHP loses value, the importers have to pay more pesos for the things they buy from abroad which they sell for a higher price to the local consumers. The exporters, on the other hand, get more pesos for their dollars. But, the Philippines is not a net exporter nation; we are a net importer country. Overall, when the PHP depreciates, our economy suffers, our consumers pay higher prices for goods.

  • johnny wang

    Keep on fooling yourselves. they say things look a lot different when you have had a bottle or two for dinner

  • Niko Howell

    >2016
    >not the beginnings of early 2000s
    nice propaganda

  • Xyerxis

    Can we grow at 8 Percent Annually?!. Duterte I Dare you, If you can do that I’ll Walk NEKKid in Public or something daring,lol