Q3 growth surprising, but can it hold out?

While there are notable gains under this Aquino administration in improving investment climate, investors look at other indicators, too, such as stability and consistency in policy including government’s ability to keep its word in contracts and agreements

Marianne Joy VitalThe third quarter growth estimates from the National Statistical Coordination Board – a whopping 7.1% – took many by surprise, with expectations leaning toward a slowdown as normalization continues, and with headwinds coming from advanced economies, most especially from the Eurozone, blowing strong.

It remains evident that stability came from the government. While the government still has enough elbow room for further spending, ultimately, it is of interest whether the market can firmly stand on its own.

The growth of public spending, 12.0% from the same period of last year, is but a sure sign that Budget Secretary Florencio Abad’s directive of prioritizing fast-moving projects has been heeded as a way of avoiding the scrimp last year that resulted in a meek full-year growth of 1.0%. The public-private partnership roll out is another thing, however. Sans the frustrating delays, full implementation could have served as a booster.

After all, public construction was a solid 23.7%, base effects included, bringing the whole construction sector to grow by 24.8% — an upturn indeed from last year’s 8.6% fall.

Jao Jackson UbiasThe private sector was also lively in its construction activities, contributing to this double-digit growth. Helped by low interest rates, an upbeat environment, series of credit rating upgrades, and still-strong OFW remittances, the real estate industry quickly translated these strong fundamentals into constructions left and right – noting all those condo units, malls, shopping centers and residential developments that sprung up.

No doubt the last quarter will still hold the same robustness observed in the 3rd quarter as confidence continues to spill over and with the same drivers fuelling the economy.

However, questions that come to most minds are those pertaining to the sustainability of this robust performance.

Economies that hold out a strong growth, increasing the long-term trajectory at that, usually have undergone major structural changes in the economy.

Has the country made huge progress in that aspect – that is, has it addressed more fundamental requirements such as the amplification of sustainable lifeblood sectors like manufacturing and agriculture? Were there notable improvements in terms of investments, pouring in money to capital to capacitate these sectors into producing more quality (and cheaper) products for international trade?

Missing leg

As fellow IDEA colleague and former Undersecretary of Finance Romy Bernardo has put it, investments remain a missing leg. While there are notable gains under this Aquino administration in improving investment climate such as the stamping out of corruption through governance reforms, investors look at other indicators, too, such as stability and consistency in policy including government’s ability to keep its word in contracts/agreements.

With this, the government should be able to minimize its squabble with industries, such as the recent one with the mining sector.

Now, despite the current view of the Philippines as a “new market darling of Asia,” could it be that we are simply riding on the slack of other Asian tigers such as China and India? In fact, data on foreign direct investments suggested that we never really benefitted from the weakness of our neighbors.

Growth, therefore, has roots in domestic factors although it failed to take advantage of investments that are truly productive. In any case, this works to an advantage, if only we could maximize it further.

There are certainly a lot of issues we can work with and more reforms to install – a feat that can be done by the current administration that holds so much promise given the high confidence from its constituency.

Never before has trust been so great to a leader, and this is what President Aquino can bank on. – Rappler.com

(Marianne Joy Vital is the Executive Director of the Institute for Development and Econometric Analysis, Inc (IDEA). She has served in government and worked with civil society organizations in research concerning the macroeconomy, public finance, local governance and human capital development. Jackson Ubias is the Research Director of IDEA, Inc. He has worked with various multilateral organizations in the field of development economics and macroeconomic policy.)