The first was a positive report on the Philippine imports performance for the month of October, which showed a year-on-year gain of 16.8 percent, more than double September’s 8.2-percent increase. The second was the release of domestic liquidity figures for November, which showed an increase in M3 of 9.2 percent year-on-year to an estimated P8 trillion, modestly higher than the P7.887 trillion recorded in October.
A third indicator showed bank lending growth overall slightly decelerated from 13.9 percent in October to 13.6 percent in November; lending for production activities declined slightly, but the decline in overall lending was eased by a half-percent increase in consumer lending growth. And finally, a fourth disclosure was a surge in ‘sin tax’ revenues by 39.6 percent to P16.3 billion, which brought the year-to-date total to P124.64 billion, 26 percent higher than the same period last year.
These indicators, taken all together, present a clear snapshot of the economy. In the last quarter of the year, we would expect to see gains in consumer goods imports, lending for consumption, and higher sin taxes as the country heads into the holidays; since that is exactly what happened, we can presume that the holiday season this year for retailers, the restaurant and entertainment sectors, and the tourism industry was reasonably successful. That’s obviously good news.
What is not really good news, however, is the downturn in production activities, as indicated by the slippage of production-related lending. A large part of consumer spending was evidently directed toward imported goods, and while consumer spending of any sort reflects positively on GDP growth, a situation like that means a considerable amount of capital is simply passing through the economy, rather than being recirculated in the form of wages or expanding business activities.
That is okay up to a point, but the lack of a stronger production component in the economy places a ceiling on how much consumer spending can contribute to growth. For one thing, much of the income Philippine consumers can spend comes from overseas labor, which is an economic double-whammy: The added value of production stays overseas, because the wages paid to OFWs simply pass through the Philippines and return to where they came from in the first place. Outside of OFW remittances, much of the consumable income of Filipinos is derived from the services sector. But the Philippines is simply too large to support a primarily services-based economy; that works in smaller, homogenous places like Singapore or Hong Kong, but those kinds of circumstances are rare, and even they have some production component in their economies, albeit limited ones. The alternative to native production activities is, of course, attracting importing producers to set up operations here; the Philippines has had some success with that, particularly in the automotive sector, but as the latest import figures indicate, not nearly enough, largely because of bureaucratic obstacles to establishing a business, and overall restrictions on foreign investment.
All any of these observations do is to confirm, again, what should be the overall thrust of the nation’s economic planning, which is to encourage growth of the production sector – ‘production,’ rather than just ‘manufacturing,’ because production can encompass agriculture, intellectual property, and other things besides conventional factory output.