In the realm of economic analysis, the latest news regarding the growth of the Philippine economy's Gross Domestic Product (GDP) is greeted with a mix of relief and intrigue. The third quarter of 2019 witnessed a surprising 6.2 percent growth, defying earlier apprehensions that the numbers might not be as positive after a relatively lackluster 5.5 percent growth rate in the previous quarter. Economic experts were quick to attribute this turnaround to accelerated government spending, which acted as a catalyst for the upswing. Moreover, indications point towards a sustained positive trajectory for the remaining quarter of the year.
Driving Forces and Sectors: A Closer Look
The Philippine Statistics Authority (PSA) sheds light on the driving forces behind this growth. "Trade and Repair of Motor Vehicles, Motorcycles, Personal and Household Goods," "Construction," and "Financial Intermediation" are cited as the main contributors to the quarter's expansion. Notably, the services sector exhibited the fastest growth rate at 6.9 percent, followed by the industry sector at 5.6 percent, and agriculture registering a 3.1 percent growth.
Zooming in on the sectors themselves, the agriculture sector encompasses farming, fishing, and forestry activities. Meanwhile, the industry sector encompasses mining, manufacturing, energy production, and construction. The services sector encompasses a wide array of economic activities such as government functions, communications, transportation, finance, and various private economic endeavors that don't involve tangible goods.
An examination of the data over the years reveals that the services sector has consistently shown upward momentum:
| Year | Agriculture | Industry | Services |
|---|---|---|---|
| 2007 | 12.5 | 33.05 | 54.45 |
| 2009 | 13.2 | 31.71 | 55.21 |
| 2011 | 12.72 | 31.35 | 55.93 |
| 2013 | 11.25 | 31.12 | 57.63 |
| 2015 | 10.26 | 30.9 | 58.4 |
| 2017 | 9.66 | 30.45 | 59.89 |
| Source: Statista.com; indexmundi.com |
Secretary Ernesto Pernia, the Socioeconomic Planning Secretary, acknowledges the resurgence in government expenditures after the delayed passage of the 2019 national budget. Pernia posits that the Philippines is likely ranked second among emerging economies, trailing closely behind Vietnam's 7.3% but surpassing China's 6%.
Striving for Target and Resilience: Challenges Ahead
With the current trajectory of GDP growth, there is a growing consensus that the country might still achieve the government's original 6-7 percent target for the year. Analysts suggest that the economy needs to expand by at least 6.7 percent during the last quarter to meet this goal.
Another integral component of economic growth stems from OFW (Overseas Filipino Workers) remittances and the diaspora surplus, which significantly influence private consumption. These factors collectively contribute a substantial 10 percent to the GDP. Over the past few decades, these factors have demonstrated their resilience, propelling the economy forward or at the very least, keeping it afloat.
However, concerns are emerging regarding the underperformance of the agriculture and industry sectors, especially among traditional export earners. Notably, the data suggests declining performance for staples like copra, while challenges persist in the rice farming sector due to subsidized rice imports that stifle local competitiveness.
Turbulent Waters: Agriculture and Industry Troubles
Reflecting the World Bank's data, the agricultural sector now constitutes a mere 9.6% of the GDP, despite employing around 30% of the workforce. This stark discrepancy highlights the prevalence of poverty in rural areas. The urban migration driven by income inequality between sectors and regions exacerbates urban congestion and traffic woes.
The industry sector is grappling with rising operational costs, a hurdle that hampers the accelerated growth of major export products such as electronics and semiconductors. While domestic consumption remains strong, propelled by OFW remittances, foreign capital dominates key market segments, including cars, computers, and electronic gadgets.
Fault Lines and Future Strategies
In Raghuram Rajan's book "Fault Lines: How Hidden Fractures Still Threaten the World Economy," he identifies hidden vulnerabilities within the global economic system. These vulnerabilities include domestic political pressures, trade imbalances among countries, and the complexities arising from interactions between financial systems with differing structures. These fault lines, less apparent than the usual culprits, can disrupt stability.
Applied to the Philippines, the stagnation in the agricultural sector's growth and the erosion of its economic viability for farmers may contribute to domestic political tensions. The industry sector's challenges, particularly soaring operating costs, warrant long-term management.
Regarding trade, Pernia acknowledges that the Philippines is indirectly affected by the US-China trade war, causing a global economic slowdown. To withstand external shocks and promote sustained growth, the nation must diversify its products and markets through strategic partnerships.
In closing, while short-term strategies can navigate certain challenges, long-term success hinges on addressing the foundational concerns of the agriculture and industry sectors. By fostering rural development, optimizing agriculture, and controlling industry operating costs, the Philippines can fortify its economic foundation and chart a more resilient course toward prosperity.
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This is a rewritten article fist published on 28 November 2019 with the title "Faultline of the Philippine Economy".
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