SPECIAL REPORT: Middle class reaping fruits of fast-growing economy

MANILA, Philippines - Denise Marie Foz, a 26-year-old marketing manager from Quezon City, does not argue with the fact that she is reaping the benefits of an economy that has grown the fastest in 40 years over the past five years.

Having bought a P3-million condominium unit in 2015, her next plan would have been to own a car this year, but she is shelving it for now.

“No car for now because it’s traffic anyway,” said Foz. “Anyway, my boyfriend has one and I think it’s better just having that for now with the traffic situation.”

Foz is among the rising middle class in the Philippines, which last year grew 5.8 percent, slower than in 2014 and lower than projected, but still the fastest among the big five Southeast Asian economies. This capped the best five years since the late 1970s in growth terms and something the Aquino administration was proud to highlight in last week’s report.

A recovery in state expenditures became the last missing piece to a spending spree that has allowed the Philippines to navigate an otherwise harsh external environment. But examining the nitty-gritty of the Philippine Statistics Authority’s (PSA) report would show it is not picking up faster.

For instance, over the past year, Filipino consumers like Foz have been buttressing the economy by piling up on cars. PSA figures showed investment in durable equipment rose 20.3 percent, helped by a 36.7-percent increase in road vehicles, a huge jump from 9.3 percent a year before.

Such rates pale in comparison with how construction, where new bridges, tolls, and roads supposed to absorb new vehicles are included, are doing. Last year, combined public and private construction rose 8.9 percent, slower than the 9.9 percent recorded in 2014.

“That is why you have traffic. For a long time, this is what we’ve been saying. We are not accelerating spending in our infrastructure enough,” said Nicholas Antonio Mapa, economist and research officer at the Bank of the Philippine Islands.

“Noticeable in the durable goods figures is the anticipation of healthy demand from the companies,” Mapa noted.

“They can’t keep up with the pace of our people,” he said.

Private sector

On the private sector, Alfredo Yao, former president of the Philippine Chamber of Commerce and Industry, said a slowdown last year would have to be expected after years of supporting the local economy.

“Some of the projects had started, year or years back and they don’t value the project as a whole anymore,” Yao said in a text message.

Mapa said a good indication from last week’s report was a double-digit rise in machinery and capital equipment.

“There is a sign companies are investing in new capacities in anticipation of healthy demand,” he pointed out.

Finance Undersecretary and chief economist Gil Beltran agreed, citing growing imports, which are up 3.9 percent despite export contracting last year.

“Imports will continue to grow substantially reflecting GDP (gross domestic product) growth,” he said in an economic bulletin.

The best part, however, is that companies and firms are not being taken aback by a looming change in government. John Forbes, senior adviser at the American Chamber of Commerce, said companies have been doing their part for the past years.

Last year’s slowdown “doesn’t mean the private sector is spending less, because it has been spending more in line with high growth in recent years,” Forbes said in a separate text message.

Public sector

The bigger story of this administration, however, was in public spending. Under President Aquino, bottlenecks as well as controversies in the discretionary spending had put state disbursements in a fluctuating trend.

Following a slowdown in 2010, a disbursement acceleration program pushed up spending in 2011 and 2012, only to be hit back again in the two years that followed, but recovered again last year.

Budget Undersecretary Laura Pascua said infrastructure spending has followed a “seasonal trend” that makes the last three months of the year a period of catching up to finish obligations. As of November last year, capital outlays have increased 32.3 percent year-on-year.

However, Mapa and Forbes are unimpressed.

“The public spending should be spending more as it ramps up to its target of five percent of GDP by this year... Public sector spending has typically lagged behind private sector,” Forbes said.

Forbes was quoted as warning Metro Manila could be at risk of being uninhabitable in four to five years if the traffic problem remains unresolved. Mapa, on the other hand, questioned the “quality” of spending.

“Most of the pump-priming they had in the past year highly concentrated on boosting consumption bonuses, increasing salaries. But infrastructure has been quite disappointing,” he explained.

But for PPP Center Executive Director Cosette Canilao, delays in public infrastructure may soon be a thing of the past.

“I believe the proposed amendments of the BOT (build-operate-transfer) law address the institutional issues…from approval to execution,” Canilao said in an e-mail. The proposed PPP law has been certified as urgent by Aquino.

A total of 11 PPP projects have been bid out under Aquino, and Canilao said it could have had a “substantial” contribution to GDP last year, without citing data.

For now, however, the likes of Foz would have to deal with Manila’s heavy traffic with hopes the next administration would spend more— and fast— to tackle the issue.

“It’s been terrible, but I hope they would come out with a solution soon,” she said.