By Riz L. Jao
Three weeks ago, the Philippine Statistics Authority (PSA) announced that the Philippine economy grew by 6.04 percent in third quarter, bringing our nine-month year-to-date growth rate to 5.60 percent. This was a bit above most economists’ forecasts—including our own of 5.80 percent. A large part of the discrepancy between what was observed and what we projected can be traced to the dramatic acceleration of government spending during the three months ending September. So let’s take a closer look at the numbers to see which sectors turned in surprising performances, both to the upside and to the downside.
On the expenditure-front, Consumption continued its dominant showing, contributing 4.31 percent (up 11.44 percent from its two-year trend) of the total 6.04-percent growth recorded in the third quarter. Investments, on the other hand, reversed its strong second-quarter performance by contributing only 2.01 percent (down 37.09 percent from its trend). This can be traced back to a reversion to the mean recorded in Construction up 5.29 percent (as compared to second quarter’s +13.13 percent) which overpowered the otherwise large upswing achieved in Durable Equipment (up 12.13 percent) brought about by the gains in the sales of Road Vehicles (up 41.98 percent—no wonder traffic has been so bad these days), Aircon and Refrigeration Equipment (up 11.61 percent) and Other Electrical Machinery and Apparatus (up 57.43 percent).
Government spending, which has been quietly outperforming its trend since the fourth quarter of last year, was no doubt the star of the show, turning in a heroic performance by contributing 1.69 percent (up a sizzling 368.39 percent from its trend) of the aggregate 6.04 percent. All in all, the local scene has continued to be remarkably robust. We see no reason for that trend to dissipate in the foreseeable future.
Setting our sights across our borders, it’s clear that front leaves a little to be desired. On the plus side, Exports had a solid showing, contributing 3.50 percent (up 52.58 percent from its trend) of the aggregate growth figure on the back of a strong resurgence in the Exports of Goods (up 5.37 percent as compared to the contraction recorded last quarter), which itself can be traced back to continued strong performances in Semiconductors (up 36.21 percent), Office Equipment (up 30.77 percent), Telecommunications (up 20.16 percent) and Consumer Electronics (up 84.42 percent). This more than offset the continued bleeding we’re seeing in the Exports of Agricultural and Fishery Products like bananas (down 58.89 percent), coconut oil (down 26.96 percent), sugar (down 89.16 percent), shrimps (down 57.68 percent) and tuna (down 22.24 percent).
Overall, bright spots in the Exports sector—outside of those dealing in Electronic Components—remain few and far in between. Some examples include mangoes (up 97.82 percent), pineapples (up 38.95 percent) and ignition wiring sets (up 7.40 percent).
On the other hand, Imports accelerated at a faster than expected 12.67 percent, wiping a whopping 7.35 percent (up 135.41 percent from its trend) off the aggregate growth figure. This despite the slowing down we saw in the Imports of Services (up just 9.31 percent as compared to the double-digit increases
recorded since late last year). Therefore, the large increase in Imports comes from the Imports of Goods (up 14.38 percent) which itself can be traced back to large increases in Electronics (up 24.19 percent), Machinery and Mechanical Appliances (up 40.67 percent), Medical and Pharmaceutical Products (up 81.17 percent), Electrical Machinery (up 21.11 percent) and Base Metals (up 30.29 percent).
The uptick recorded in the Imports of Electronics can itself be linked to large increases in the Imports for Semiconductors (up 20.32 percent), Electronic Data Processing (up 19.61 percent) and Telecommunications (up 85.66 percent). Notice that these industries were also among the star performers in the Exports side. No doubt the increase in Imports represents the purchase of the necessary raw materials needed to meet demand on that front. This highlights the importance of new investments to internalize further some of the production processes in that sector—especially in Semiconductors, which alone accounted for 4.65 percent of the 14.38-percent overall growth in Imports. Thankfully, there’s a lot to be excited on that front thanks to the efforts of the Department of Trade and Industry, Board of Investments and the Semiconductors and Electronics Industries in the Philippines.
Overall, Net Exports ended up deducting 3.85 percent (up 364.66 percent on the downside from its trend) off the aggregate growth figure. While larger than we originally anticipated, we continue to reiterate our viewpoint that the external environment remains unclear and that it would be best to look beyond
sizable increases in Exports as the avenue to fuel our economic growth.
We mentioned at the beginning of this year that the Philippine growth story seems poised to continue further on the back of robust showings in Construction, Manufacturing and Consumption. We also noted that the uncertainty in the global economic environment continues to represent the largest risk in derailing us from our current path of high growth. The data of these last few quarters has supported our judgments. We, therefore, maintain our 2015 forecasted growth rate at 5.8 percent.
Stay tuned for our updated fourth quarter GDP forecast, as well as our economic outlook for what to expect in 2016 by joining us at the upcoming Eagle Watch Economic Briefing on January 20, 2016. Please don’t hesitate to reach out to us at 426-6001 (Ate Sai or Ate Rea) to find out more details. See you then!
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Riz L. Jao is a lecturer of economics and a research associate for Eagle Watch at the Ateneo de Manila University.