Press Release
August 31, 2007


"I am pleasantly surprised with the second quarter's robust growth of 7.5%. However, we see that this growth is primarily consumption-driven, which puts to question the sustainability of this growth."

"We see that the main driver of this growth is the services sector, in particular, trade, transportation and communications. Furthermore, we see a continuation of the impact of elections spending. This, too, directly benefits the services sector."

"We welcome the 8% growth of Industry, especially the strong 21% growth of construction, which is another key contributor to growth in the 2nd quarter. We also welcome the continued strength of the BPO sector.

"However, we also see that agriculture has slowed down to 3.9% compared to 6.7% in the same quarter last year. This is the sector where the country's poor earn their living, and we should immediately focus on establishing sustainability of agriculture production."

"As far as Juan dela Cruz is concerned, GDP growth means nothing, if it does not directly relate to his own wallet. The challenge the government faces is to turn the upbeat headlines in the newspaper to food on the table, to better jobs and income, and to more affordable goods and services."

* Consumption drives growth:

o It's still consumption that is driving the economy. What we need to see is growth coming from production of goods and services in order to realize sustainable growth. o Personal Consumption Expenditure (PCE) grew 8.7% in the 2nd quarter, contributing 4.69 percentage points to total growth. More than half of this is spending on food. Strong OFW remittances also fuel personal consumption. o The impact of consumption can also be seen in the services sector, where the good news continues to come from. o The wholesale and retail trade sub-sector grew 12.30% and contributed 1.4 percentage points to growth. This means that outlets where people can buy goods from are expanding and earning more. o The transportation and communications sub-sector grew 8.31% and contributed 0.9 percentage points to growth. The consumption of telecommunications services (phone subscriptions, cell cards, pass-a-load, etc.) remains strong.

* Elections spending:

o Aside from the above, we see that election spending has spilled over or continued into the 2nd quarter, as we have seen the same in the 1st quarter. The campaign period is 90 days before the date of the elections, or roughly February to May. o A lot of money goes around every elections year, especially during the campaign period. Most of these go to the services sector, in the form of political advertising, printing, travel and telecommunications expenses, and sometimes even government spending. o Let's say there are 20,000 elective positions, with two contenders each position, and each candidate spent about P1 million. This means that a total of P40 billion was spent. o If we look at the past, we can see that GDP indeed grows faster during election periods.

* On Job Creation:

o Still, 7.4% of our labor force is unemployed and 18.9% are underemployed. This means at least 26.3% of our people do not have a decent job and sufficient income. o There is a need to focus on the productive sectors of the economy that are potent employment providers. o There are rays of hope in the 2nd quarter GDP results. The Industry sector posted a strong growth of 8%, buoyed by the construction (which grew 21.05%) and mining (which grew 33.32%) sub-sectors. o However, the manufacturing sub-sector, which is roughly 22% of the economy, remains flat (3.73% growth). o At the same time, BPO showed its strength in the quarter, as reflected by the private services sub-sector growth of 8.60%

* On Agriculture:

o Unfortunately, Agriculture grew 3.9% in the 2nd quarter, slower than 6.7% in the same quarter of last year, and contributed a dismal 0.67 percentage points to total GDP growth. o The share of Agriculture in the economy is roughly 14%, compared to Industry (32%) and Services (54%). o At the same time, the agriculture sector also employs roughly 40% of the labor force, and the poor in the countryside belong to this. o When will most citizens benefit directly from the accelerating trend of the economy? It is when agriculture experiences sustained and meaningful growth. o This could be achieved by reforming our institutions providing support and services to the agriculture sector. Our agriculture programs must become more proactive to the needs of the sector.

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