Faltering momentum

‘‘We’re keeping our fingers crossed year 2007 won’t prove to be a fluke.’
 

Gloria Arroyo expressed confidence the surge in the last two quarters was no fluke. She said she was sticking, however, to a full-year growth projection of 6.1 to 6.7 percent, and build on the gains for bigger growth presumably in the two-and-a-half years remaining in her term.

That’s the prudent course, we suppose, for the momentum is already faltering in the third quarter. And dark clouds are looming on the horizon.

We do not mean to rain on Arroyo’s parade, but some economists are already joking about the apparent underestimation of the spending during the May elections. For there is no question that election spending was the prime driver of the perk in consumer demand. That’s one spending booster we would not be seeing again until 2010.

Another major driver was government spending. The first quarter growth in government expenditure was 9.9 percent. This surged to 13.5 percent during the second quarter.

There should actually be no surprises here. Arroyo said at the start of the year that after the belt-tightening of years past, her government would be ratcheting up spending this year. It was time, she said, the people got their share of dividends from higher taxes. Spent she did as promised. That the pump-priming took place during the election period was not coincidental.

Now what’s the score on the fiscal front? Collections of the Bureau of Internal Revenue, the biggest source of government revenues, were below targets. This was the reason BIR chief Jose Mario Buñag was sacked. We don’t see any likelihood the new BIR leadership would be able to squeeze more from taxpayers.

Now let’s take a look from the supply side. The drought at the start of the second semester is sure to take its toll on agricultural production. Agriculture accounts for the GNP and almost half of the population earns its livelihood from this sector. And the impact of low agriculture output on industrial production cannot be under-estimated. The growth driver on the production side was services, specifically trade and financial.

With an anemic agriculture and manufacturing, growth will continue to be "ampaw," crunchy on the surface, all air inside.

But on balance, the growth momentum of the first semester can be expected to be carried forward into the third quarter and, possibly, the fourth quarter. We should have a good year barring another shakeout in the world economy.