What does a 6.5% GDP growth mean?
Last week the Philippine government reported a 6.5% GDP growth rate for the second quarter of 2017. This is slightly higher than the 6.4% growth rate of the first quarter but slower than the 7.1% growth of the second quarter last year. Still, this is a very respectable growth for the economy and would rank second among Asian countries, just behind China. From the "demand," side, the growth is coming from the public side with government consumption expanding by 7.1%, while private sector investments were at 8.7%, and the negative external position, (imports-exports), trimming the growth. On the "supply" side, industry grew at 7.3% mainly from the manufacturing, mining and quarrying sectors. Agriculture recovered with 6.3% and services at 6.1%.
To appreciate the impact of these growth rates on the lives of the people, we relate these annualized growth rates to the total size of our GDP which is some P15 trillion, ($300 billion+) at current prices. A 6.4% annualized growth, translates to a 1.6% growth for the quarter, which means a P240 billion in additional value/expenditure into the economy in the second quarter of 2017. Adjusted for inflation, the amount of additional expenditures or money that moved in the second quarter was nearer to P500 billion. That is why unemployment and underemployment went down, self-rated poverty went down, the stock market went up, and people were more optimistic about the economy.
While the overall impact of a growing economy is good, the impact on the different economic classes are in varying degrees. The entrepreneurial class who are the producers of goods and services would benefit more as their sales/revenues and profits increase. Those with capital will also realize an increase in the value of their investments. Then the professional class would increase their income, and the workers would get their salary increases. In an economy where there is no labor surplus, the workers tend to get more benefit in a growing economy as tightness in the job market would command a higher wage rate for labor. These are happening in developed countries, especially in the Scandinavian countries where birth rates have stabilized and education easily available. Then the benefits of economic growth are broader and less disparate.
On the sectoral basis, the government employees, government contractors and suppliers benefitted the most in the second quarter. Then those in the manufacturing industries, and then those in the service industries. The government spent a lot on the military and the police to contain the terrorists, the rebels, and the war on drugs. Some of the infrastructure projects have started moving, and there are the salary increases and the hiring of more government employees. More employees were also hired in the manufacturing and service industries and the continuing construction boom employed more workers and used more construction materials.
The Philippine economy is on a roll. In the December 2016 issue of Fortune magazine, they predicted that 2017 is the Philippines' year. "President Duterte's penchant for vigilantism and anti-Americanism is worrying, but he has taken over an economy that's hitting its stride." They predict that the Philippine economy will grow by at least 6.2% in 2017. These words capsulize the relationship between governance and economics. The investments, both local and foreign, and the consumer expenditures are scared of political instability and authoritarianism. They will as soon move to safer shores when they no longer perceive it to be safe in the country. They are more comfortable in a free-enterprise economy. These are amply demonstrated in the current situation in Venezuela, Turkey, and Poland. Eventually, freedom and moral leadership are vital components of prosperity.
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