Behind the 2013 Philippine Statistical Economic Growth of 7.2%

The Philippine statistical economy reportedly grew by 7.2% in 2013. 

As a side note, in my opinion, this news release has been timed to temper down on the renewed selling pressure from the "taper"

Question is what’s been driving the so-called growth?

The following graphs are from the National Statistical Coordination Board

Aside from the non-bubble manufacturing, the gist of the growth on a per industry basis comes from the usual base: construction, financial intermediation and real estate.

These are areas where most of the credit growth from the banking sector can be seen (data from the BSP updated November 2013).

One would note that financial intermediation soared by 40% in January of 2013 but turned lower and grew by less than 10% at the latter semester. The growth during the early half basically offset the slower growth at the second semester. This led to the annualized considerable growth figure.

Meanwhile credit expansion in construction, and real estate growth remains significantly above statistical economy.

On the per expenditure basis, growth mainly came from Intellectual Property Products (IPP) 15.4%, Durable equipment 14.4%, construction 10.9%, government expenditure 8.6% and household consumption 5.6%

Note the demand side (HFCE) has been growing 5.6% slower than the growth in the supply side.

Also IPP represents only 2.6% share of the fixed capital. The bulk of the distribution of fixed capital comes from construction with a 40% share and durable equipment at 50% share. 

And where is the growth in the durable equipment?

Largely in air transports. Whoever has been buying those planes. Could it be the government? Transports account for 44% share of the durable equipment. Road vehicles which has the largest share (in terms domestic currency at constant 2000 prices) have shown little growth at 5.5%. As a side note I used the constant 2000 as measure to be consistent in all of the above.

The other growth areas are ‘other general industrial machineries’ which accounts for about a third of the General Industrial Machinery, the latter category holds a 14.5% share of durable equipment.

Another ‘other misc durable equipment’ which accounts for 88% of miscellaneous ‘equipment’. The last category has an 18% share of the durable equipment data.

I wonder what constitutes the “other” categories in the durable equipment data which are derived from surveys: Annual Survey of Establishments (ASE) and the Census of Establishments (CE). The NSCB admits that “the estimates are affected by the limitations of these surveys.”

The bottom line: Whatever statistical growth the Philippine economy in 2013 has registered has largely been based on credit inflation. This means that for such rate of statistical growth to be sustained, credit inflation in these sectors would have be maintained; this via zero bound rates and a stable currency, something which unfortunately, the current market environment has been pushing back. The USD- Philippine Peso seems back at 45.30s level as of this writing and yields of 10 year Philippine treasuries have hardly gone down.

Second, yet growth in these sectors have largely emanated from those entities with access to the banking sector which means statistical growth has been concentrated to few. 

This also leads us to the third issue, the current statistical growth has largely been representative of the formal economy and hardly the overall economy where the informal economy has a big presence. The fact that the banking system has low penetration levels exhibits on the structural inefficiencies of the Philippine economy which means that savings have hardly found its way into productive undertakings. Thus the bellyaching by the mainstream of the lack of investments.

So the domestic central bank (BSP) instead resorts to implementing bubble blowing policies while the executive branch wants to spend its way just to generate statistical growth (thus benefiting cronies).

And signs of unproductive credit based spending can be seen from the sustained deficits in the Philippine trade balance. 

Real growth comes only from real savings and not from credit expansion

This also means that the Philippine GDP have been prone to significant statistical errors.

Fourth, supply side growth continues to substantially surpass demand side growth. And this means no imbalances (as alleged by the mainstream and those obsessed with impeccability of statistics)? Whatever happened to the law of supply and demand? 

Lastly all these cheerleading of the statistical growth (really a legacy of the mania phase from last year) reminds me of the warnings of the the great Austrian economist Ludwig von Mises (bold mine)

Public opinion is utterly wrong in its appraisal of the phases of the trade cycle. The artificial boom is not prosperity, but the deceptive appearance of good business. Its illusions lead people astray and cause malinvestment and the consumption of unreal apparent gains which amount to virtual consumption of capital. The depression is the necessary process of readjusting the structure of business activities to the real state of the market data, i.e., the supply of capital goods and the valuations of the public. The depression is thus the first step on the return to normal conditions, the beginning of recovery and the foundation of real prosperity based on the solid production of goods and not on the sands of credit expansion.