LAST week the National Statistical Coordination Board (NSCB) shocked the business and economic community by announcing that the Philippine economy grew “just” 5.15 percent in the first quarter. Within hours, news outlets, stock trading web sites and social-media sites were teeming with disappointment with the economy’s lackluster showing. As a result, over the next two days, the benchmark index experienced one of the worst two-day periods so far this year, shedding 220 points (2.85 percent) before recovering some of its lost ground, but still ultimately ending the week down 230 points from where it started.
All this begs the question, “What caused the relatively poor first quarter showing?”
From the expenditure-side, Consumption and Government Purchases remained robust contributing 3.70 percent and 0.52 percent of the aggregate 5.15 percent gross domestic product (GDP) growth, respectively. Both figures were near or surpassed their two-year average contributions. What proved disappointing were the other two components of demand, namely, Investment and Net Exports.
Investment contributed just 2.60 percent to overall growth—almost 20 percent below its average showing in the last two years. This shortfall can be explained primarily by the poor results recorded in Construction (0.47 percent contribution), and Inventory Investment (0.33 percent). Furthermore, the slowdown in the former can be traced to a large drop in Public Construction (down 24.59 percent) during the first three months of the year. On the other hand, while Inventory Investments were below the average levels we’ve seen this past two years, they actually signal a reversal from the Inventory Disinvestment recorded in the third and fourth quarters of last year. This suggests that businesses’ remain optimistic as they begin anew to stockpile inventory to meet higher expected demand in the future.
On the international side, Net Exports were hit hard by a sudden drop in exports, which contributed just 0.48 percent of aggregate growth versus its average showing of 2.59 percent. Along with a milder drop in imports growth, which, however, still managed to record a respectable 4.57-percent increase (31.61 percent below its average) during the period. Sadly the decline in imports wasn’t enough to stave off the drag in economic growth caused by the large drop in exports.
While both exports of goods and services fell during the period, the former accounted for the lion’s share of the decline. This can be traced back to weak agricultural exports showing—specifically, in bananas (down 64.10 percent from last year) and sugar (down 78.32 percent). These two more than offset the good results posted by coconut oil exports (up 69.28 percent from last year) and pineapples (up 45.42 percent).
Fishery products also accounted for a relatively large chunk of the drop in exports, recording a decline of 49.11 percent in the first quarter with tuna exports accounting for most of that sector’s lackluster foreign performance (down 49.97 percent).
Not everything was bad news, however, exports of electronic components remained robust in the first quarter of the year recording an 8.71-percent growth rate, with semiconductors leading the charge (up 13.85 percent). This more than offset the 44.68-percent and 8.31- percent contractions in Control Instrumentations and Electronic Data Processing, respectively. When everything else is said and done, we remain upbeat on the prospects of a continued strong performance in electronic exports.
Other bright spots in the external sector include: apparel (which contributed 0.44 percent to aggregate growth) and cathodes (0.47 percent).
So, putting everything together, “What does this mean for economic growth in the coming quarters?”
While it’s near impossible to say for sure whether exports will shift onto a higher gear in the next few months—as this will depend not just on a favorable external environment (the demand side of the equation) but also on beneficial supply-side factors e.g., good weather for our agricultural exports. If global first quarter results are anything to go by, it would probably be best to look beyond a sizeable increase in exports as the factor that will catapult us back onto the 7-percent to 8-percent band of economic growth.
Instead, we must look to our own shores. And, thankfully, things are clearer on the domestic front. With the renewed commitment to accelerate public spending (especially public construction projects), coupled with an optimistic business environment that leads to and further encourages high levels of consumption, we are hopeful the targeted 6.5-percent to 7.5-percent growth rate this 2015 can still be achieved. Come year-end, we can be confident that we’ll look back at last week’s media release as nothing more than a blip in our quest toward high and sustainable economic growth.
Riz L. Jao is a research associate of Eagle Watch, the macreoconomic and forecasting unit of the Ateneo de Manila University Department of Economics and Center for Economic Research and Development