By any measure, our GDP growth for the second quarter is impressive. It brings closer to the whole year growth target of between 6.5 and 7.5 percent. It is not enough, of course, to restore our economy to 2019 levels.
Most of our media decided to look at the glass as half-empty. Most papers reported that our economic growth “slowed” in the second quarter. That is technically correct. It is indeed lower than the 8.2 percent we posted in the first quarter.
Growth in the first quarter was helped by holiday and election spending. The full brunt of the global inflationary surge had yet to be felt. Oil prices have yet to spike. Weather-wise, the first quarter was benign.
Contrast this with conditions in the second quarter. The Russian invasion of Ukraine caused oil prices to spike. A looming food crisis forced up prices of grains we import. Interest rates were forced higher to fight inflation. Higher interest rates throttle investments. The peso’s exchange value began to erode.
In a word, the economy was pushing against the wind in the second quarter.
The global economy was slowing down, weighed by rising oil prices and interest rates. The markets for our exports were receding instead of expanding. The prices of our imports were rising.
It is not surprising that under these conditions, consumer spending took the biggest hit. Our consumers, fearing loss of purchasing power, held back on their spending. Our economic growth, to emphasize, is consumption-led.
With our oil bill much higher, it is understandable that our gross international reserves shrunk in the second quarter. This adds to the factors undermining the peso’s value. The principal driver pushing down the peso, however, is higher US interest rates. That encourages dollars to flow back to the US economy even as the altered currency exchange rates encourage American companies to invest abroad.
Our agriculture continues to fail.
In the second quarter, agriculture grew by only 0.2 percent. This forced us to increase agricultural imports. Apart from rice, we now import an assortment of other agricultural products. Imported onions is the latest distressing market reality.
Our farmers’ groups oppose any and all agricultural importation. But if we do not resort to that, we will face shortages and speculative prices. That will punish our consumers immensely.
The poor performance of our agriculture pulls down total GDP growth. If only our farms were more productive, we should have no problem sustaining our economic expansion at 8 percent or better.
The fact, however, is that improving our agriculture can only be a slow process. Farms will have to be reorganized. Logistics will have to be improved. Land use will need to be reimagined. This sector has been dragging down our economic performance for decades. It will continue to do so for a long time to come.
Until we are able to drastically reimagine our agriculture, we will be running a marathon with a heavy backpack on our back.
The global environment will continue to be hostile to our economic expansion. Some of our major markets abroad are facing the prospect of recession in the near term.
Nevertheless, we must try to grow where we can. Our manufacturing and services sectors are performing quite well. But until we are able to rein in inflation, consumer demand will continue to flag.
Drills
China is not making it easier for the region to focus on the economic challenges of this time.
The massive military exercises Beijing initiated in the water all around Taiwan were supposed to end last Sunday. They continue on, to the dismay of all the neighboring countries.
The prolonged military drills around Taiwan raise the specter of an imminent invasion of the self-governing island. What was thought unlikely before last week is now considered merely improbable. Recall that Russia prepared to invade Ukraine under the cover of military exercises on the common border.
The costs of mounting an invasion on well-armed Taiwan will be staggering for Beijing. The economic fallout will surely be prohibitive. But neither cost nor the level of folly ever dissuaded the leadership in Beijing. This is the regime that ignored global condemnation by murdering thousands of its own people at Tiananmen Square, oppressing hundreds of thousands of Uyghurs at Xinjiang in the name of averting terrorism and brutally crushing the democratic movement in Hong Kong. This is the same regime, after all, that maintains its “Zero COVID” strategy despite the great costs to its economy and people.
The most benign and optimistic assessment about Beijing’s unprecedented military maneuvers around Taiwan is that all these are intended to refocus public attention away from serious economic problems the leadership is trying to sweep under the rug.
China’s financial system is teetering. It is overexposed to the property development sector, now sputtering. Several huge property development firms are in serious financial trouble. Several regional banks are unable to service their depositors, leading to open protests. Beijing could delay the dam breaking but not stop such an event from happening.
Beijing is under the grip of a leadership faction that thinks nothing about kidnapping booksellers and forcing billionaires to disappear. It is a regime that intimidates its largest enterprises rather than build an environment conducive to business.
The once fabulous growth rates China once posted has now shriveled. Its population is aging and its labor is costly.
There is no better time to refocus the attention of its citizens away from the economy.