Growth not sustainable, not inclusive

First-quarter GDP grew by 7.3% to the surprise of many analysts, including myself. That’s the good news. The bad news is that the first-quarter growth is not the type that you want to build on. It’s unsustainable, largely debt-driven, and non-inclusive.

Is the 7.3% growth sustainable? The short answer is NO. The economy appears to have grown largely because of (a) election-related spending and (b) low base effects. I estimate that if election-related spending was netted out, first-quarter GDP growth would be in the neighborhood of 3.6%.

The fastest growing activity during the quarter was broadcasting media — up by a staggering 31.4% from 1.3% during the same quarter last year. Also fast growing was waste collection/disposal, up by 9.5% from 1.9%. This acticity involves cleaning up the clutter right before the start of the campaign period. The other election-related activity is the rental business for offices, up by 10.9% from negative 4.6%.

Government construction continues to be strong. National and local politicians like to implement projects a few months before the start of the campaign season. The memory of Filipinos is supposed to be rather short. They only remember what they see a few weeks before the elections.

Government construction grew by 8.2% from an even strong performance of 9.3% the year before. Mrs. Arroyo is determined to finish as many SONA projects as possible before she becomes Representative Arroyo. Notice all the new buildings sprouting all over the place — a new Treasury building, a new Department of Budget and Management building, other buildings in many state universities and colleges. Has Mrs. Arroyo been afflicted with edifice complex? These office buildings are nice but they pale in comparison with the need to upgrade the Philippines’ crumbling infrastructure. That’s where a big chunk of the first-quarter budget deficit of P131.6 billion went.

I expect the budget deficit to further expand before the new administration assumes office. A full-year budget of at least P340 billion is likely.

Manufacturing output expanded impressively led by petroleum products; but growth in petroleum production is largely base effects

Manufacturing outputs soared by 20.7%, from a sharp fall of 7.6% last year. That’s base effects. The expansion of the sector can be explained by the phenomenal rise in output for petroleum products — 65.9% from negative 29.0%. Last year, when the price of crude oil in the world market was falling, it makes sense for local oil refiners (Shell and Petron) to import finished products rather than refine them here. Production was deliberately slowed down, and that explains the sharp rise in oil production this year.

Is the GDP growth of 7.3% inclusive? Did it filter down to the great majority of Filipinos? The short answer is no.

As I always say when the economy grows at, say, 5 %, it does not mean that the output (well-being) of all Filipinos expanded by 5%. It could mean faster growth for some, slightly less for others and perhaps much slower (or even negative) for a lot of people.

But the first-quarter growth is not broad-based. The agriculture sector, which employs about one-third of the labor force and on which more than half of the population depends, has contracted by 2.5%. Palay production is down by 11.4% from 5.1% last year; corn output is down by 16,8% from 3.4%; and sugar production is down by 4.6% from negative 3.5% last year.

Of course, the sharp decline in agriculture can be explained by the harsher-than-expected El Niño and the lingering effect of typhoon Pepeng that damaged vast farm lands in Luzon.

Don’t blame us for the El Niño and other natural calamities, government authorities might complain. But a government that has been in power for more than nine years should have prepared the economy from the cruel effects of natural calamities. They could have built irrigation systems and focus agricultural production in areas not frequently visited by typhoons.

With foresight, careful selection of projects, and graft-free implementation of these projects, the adverse impacts of harsh weather and natural calamities could have been mitigated.

For policymakers, their concern should not be limited only to how the economy has grown but also how that growth is distributed. What happened to the farmers and their families who were adversely affected by El Niño and Pepeng? What happened to the people in the rural areas who rely on agriculture for their living?

For Filipinos who rely on agriculture for their livelihood and employment, for those who live in the rural areas, poverty and hunger is not far behind. For them, the growth statistic is just a number — it can’t be used to feed one’s family, it can’t be used to educate one’s children, and it can’t provide a better future for their children and their children’s children. –Core — By Benjamin E. Diokno, Businessworld