Third-quarter performance
Weak Growth
The domestic economy grew just 4.8% in the third quarter, the same pace of expansion a year ago. The slow growth was a result of restrained public investments under a re-enacted national budget, in addition to constraints in government procurement. This was reflected in the drop in overall construction growth to 1.0% from 6.0% in the same quarter last year, dragging down industrial growth to 4.0% from 5.3%. On the demand side, government investments in construction expanded by a mere 1.7%, down from 7.6%.
Meanwhile, growth in the agriculture, fishery, and forestry sectors stepped up to 4.1% from 1.7% a year ago, backed by a strong recovery in the forestry subsector. In industry, on the other hand, growth in mining and quarrying declined to 2.8% from 3.1%. Manufacturing growth also went down to 4.8%, down from 5.7% the year before. According to the National Statistics Office, manufacturing production volume has continued to decline for nine straight months.
By expenditure share, personal spending grew faster at 5.3% in the third quarter from 4.9% the previous year, while government spending posted a slight recovery at 0.4% from 0.2%. A 10.3% growth in merchandise exports pushed overall exports growth to 9.1%, up from 6.7% a year ago. Conversely, the growth of merchandise imports weakened to 0.9% from 8.0%, pulling down overall imports growth to 1.2% from 7.5%. The appreciating peso failed to dampen external trade, which reflected the rising demand for electronics and the weakening of the U.S. economy, the country’s top trading partner.
Backed by strong inflows of overseas Filipino workers’ remittances, third-quarter GNP growth accelerated to 5.8% from 4.8% the year before.
WESM Price Fixing
PSALM’s Sleight of Hand
If electricity were traded freely, everybody would benefit,” goes the opening line of the Wholesale Electricity Spot Market website. Initially, after its trading operations began on 23 June, the electricity spot market did live up to its promise of better electricity pricing, with power producers competing evenly to sell their output to distributors in the open-access market.
Subsequently, however, during the billing period of 26 August to 25 September, the trading price of electricity at the WESM suddenly jumped 74% to P4.85 per kilowatt-hour. In the previous billing period, the average rate was P2.79/kWh only and was expected to climb to P3.00/kWh at most. Power distributors such as the Manila Electric Co., which was purchasing 50% of its supply requirements from the WESM, bore the direct impact of the price hike and was expected to pass on the higher cost to end-consumers.
This set alarm bells ringing. The market surveillance committee of the Philippine Electricity Market Corporation, operator of the WESM, investigated the matter and determined that the state-owned Power Sector Assets Liabilities and Management Corporation had “abused market power.” The committee found that PSALM, which was selling at the market electricity generated by the National Power Corporation’s plants and by some independent power producers, had inflated prices during peak hours of the market in August and September.
After the investigation, the PEMC ordered the correction of the WESM’s August–September billings. However, the overcharging PSALM was spared from punishment because the spot market was still operating under a six-month amnesty period.
But to discourage future attempts at price fixing, the PEMC’s market surveillance committee recommended that management and control of at least 70% of the total energy output contracts of independent power producers should be with the private sector. In addition, specific guidelines on acceptable and unacceptable behavior for all trading participants would be defined and implemented.
| Signals |
 The National Statistical Coordination Board’s index of 11 leading economic indicators for the fourth quarter improved to 0.120 following three straight quarters of slowdowns due to positive contributions from the following: stock price index, exchange rate, money supply, merchandise imports, and new businesses.
Headline, core, and nonfood inflation rates eased to 30-month lows in November. Both headline and core inflation rates dropped for the eighth straight month to 4.7%. The inflation rate for food went down to 4.9%, while the rate for nonfood items also slowed down for the fifth straight month to 4.4%. The deceleration in consumer prices is attributed to lower fuel prices and the strong peso-dollar rate.
A re-enacted budget, as well as savings on interest payments, slowed down government spending in January to November, cutting the fiscal deficit for the period to only P58.3 billion from P122.8 billion a year ago. While government expenditures rose 8.5% to P940.8 billion, revenue collections expanded 18.6% to P882.4 billion.
Merchandise imports rose 9.2% to US$42.9 billion in January to October from US$39.2 billion a year ago. The country’s leading imports were electronics, growing 7.3% to US$20.2 billion; mineral fuels, lubricants, and related materials, jumping 29.3% to US$6.8 billion; and industrial machinery and equipment, rising 10.3% to US$1.7 billion.
Merchandise exports expanded 16.4% to US$39.3 billion in January to October from US$33.8 billion a year ago. Electronics remain the country’s top dollar earner, growing 11.5% to US$24.8 billion. Articles of apparel and clothing accessories, the country’s number two export item, increased 15.5% to US$2.2 billion.
 The volume of manufacturing production shrunk 9.4% in January to October. Sixteen subsectors posted cumulative losses in this period, compared to only nine subsectors a year ago. Net sales volume in manufacturing likewise contracted 4.8% from a 1.6% decline a year ago.
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