During our last Eagle Watch Economic Briefing held on August 6, we pegged the 2015 second-quarter (Q2) gross domestic product (GDP) growth rate at 5.61 percent. Three weeks later, the National Statistical Coordination Board (NSCB) proved us prescient when they released the official 2015-Q2 GDP results, stating the economy had grown 5.6 percent in the interim—for an average of 5.3-percent growth in the first half of the year. The major premise behind our forecast was an acceleration in construction, manufacturing and consumption. Let’s take a closer look and see how things played out.
From the expenditure side, consumption and government purchases continued to lead the charge, contributing 4.09 percent (up 5.75 percent from its two-year trend) and 0.46 percent (up 27.80 percent from trend) of the aggregate 5.6 percent GDP growth, respectively.
Investments—which was one of the major drags leading to last quarter’s poor showing—has finally rebounded back to its trend line, contributing 3.14 percent of aggregate growth. The reversal can be traced primarily to a surge in construction (which contributed 1.21 percent, up 28.01 percent from trend) and inventory investment (1.38 percent, up 12.84 percent from trend), both of which were able to offset the lower contribution recorded in durable equipment (0.59 percent, down almost 40 percent from trend). The sharp drop of durable equipment can largely be explained by the contraction in transport equipment (down 6.85 percent from last year), which itself was caused by the freefall recorded in air transport (down 64.67 percent). In short, from the domestic side of things, the Q2 GDP result was incredibly solid.
On the international front, exports continued its poor showing, contributing just 1.78 percent to aggregate growth (down 22.47 percent from trend), while imports contributed -5.55 percent (up 77.81 percent from trend). All this led to net exports deducting 3.77 percent from GDP growth (over four times the trend for the last two years of minus 0.83 percent). Thus, things are decidedly bleaker from the international side.
The continued poor showing in exports was primarily caused by the contraction in the exports of goods (down 2.95 percent from last year), which sadly overpowered the otherwise solid performance recorded in the exports of services (up 31.08 percent).
The drop in the exports of goods can be traced to the large fall recorded in agricultural exports (down 44.54 percent from last year). Specifically, bananas continued its second straight quarter of over 60-percent contraction (down 64.74 percent), sugar had an equally abysmal showing contracting 71.93 percent—it’s third consecutive quarter of over 70-percent decline—while dessicated coconut followed not far behind (down 58.90 percent).
Much like last quarter, fishery products (down 32.68 percent) also contributed a relatively large chunk of the drop in exports. This was primarily due to the continuous contractions recorded in the export of shrimps (down 64.74 percent, its third consecutive quarter of over 40 percent drop) and tuna (down 29.50 percent, its fifth back-to-back quarter of shrinking roughly 30 percent or more).
Other notable exports sectors that were also negatively affected by the poor global economic performance include apparel (down 14.24 percent from last year), cathodes (down 39.97 percent) and other exports (down 27.08 percent).
The lone bright spot in the exports of goods sector involves electronic components (up 23.01 percent from last year). As usual, semiconductors led the charge (up 30.53 percent) with office equipment (up 152.64 percent) and consumer electronics (up 23.58percent) also recording solid performances. These were more than able to offset the declines in electronic data processing (down 17.81 percent) and automotive electronics (down 73.63 percent). All in all, we reiterate our confidence for the continued dynamism in electronics exports.
Wrapping things up, last quarter, we noted that the relatively poor global economic environment suggested that it would be best to look beyond a sizable increase in exports to catapult us back to a higher economic growth rate. The 2015-Q2 GDP result has proven that our doubts were well-founded. Sadly, the external environment looks no clearer than it did earlier in the year.
As the global economy continues to chug along slowly, we must once again look to our own shores to continue our quest toward high and sustainable economic growth. Thankfully, there’s a number of things to be excited about as evidenced by the upticks recorded in construction— both public construction (up 21.72 percent from last year) and private construction (up 12.19percent) had solid showings—investment and consumption. All this coupled with the continued strong performance of overseas Filipino workers remittances means we are confident we can reach our targeted 5.7 percent to 6.0 percent GDP growth rate for 2015 come year end.