Statement of NEDA Director General Paderanga on Q3 growth

The Philippine economy registered a moderate growth of 3.2 percent in the third quarter of 2011, supported mainly by the growth in the services sector. Considering the 3.4 percent contraction in net primary income, the growth of the Philippine’s gross national income was slower at 1.6 percent.

The typhoons that caused losses and damages in the agriculture sector, the global economic slowdown amid uncertainties in Europe and weakness of the US economy and contraction in the construction sector amid stricter project reviews for public construction projects, contributed to the modest performance of the economy. The services sector however continued to perform strongly on the back of sustained OF remittances, relatively more favourable inflation environment, and increased pace in government expenditures, as the services sector saw strong performances by the transportation, communication and storage; real estate, renting and business; public administration and defense; and education, tourism, and other services subsectors.

On the demand side, household consumption grew by a hefty 7.1%, on the back of sustained OF remittances and a relatively favourable inflation environment. Government consumption likewise grew by 9.4% due to increases in personal services and MOOE, up from the 4.3% growth in the second quarter of this year. This indicates an acceleration of government expenditures. Capital formation likewise grew by 24.5%, even amid the contraction of the construction sector, as durable equipment grew by 9.9%. As expected, exports contracted by 13.1% as foreign demand, particularly for electronic products, contracted.

In comparison with the Asian neighbors, the country’s third quarter economic performance is weaker relative to Indonesia’s 6.5 percent growth, Vietnam’s 6.1 percent, Singapore’s 6.1 percent, Malaysia’s 5.8 percent, and Thailand’s 3.5 percent. Moreover, the third quarter growth performance is below the 4.6 percent consensus forecast of both international and domestic analysts, including NEDA’s forecast of 3.8 to 4.8 percent.

Outlook for Q4 2011

Notwithstanding the third quarter’s moderate growth, there are indications of more favourable prospects for the fourth quarter of 2011. These include the following: anticipated higher demand on account of the Yuletide and harvest seasons; a more stable macroeconomy; a broadly steady consumer sentiment; the continued inflows of remittances from Filipinos overseas; the reported higher level of business confidence relative to the previous quarter; and the full implementation of the PhP72 billion Disbursement Acceleration Program of the government.

There is general expectation of robust consumption, continuing improved investments, and higher government consumption in the near term.

Private consumption will be buoyed by increased household spending in the year-end, particularly on items related to food and utilities. Spending will be spurred by broadly stable commodities’ prices. In addition, consumer sentiment will be more optimistic, and this will be carried over to 2012.

The upbeat expectations of the private sector for the next quarter will particularly boost construction and durable equipment. These will complement the upturn of public capital expenditures. Based on the recent business expectations survey of the Bangko Sentral ng Pilipinas, the construction sector is expected to be bullish in the last quarter of 2011.

Public construction and government consumption and services are likely to pick-up in the coming quarters due to quick releases and faster utilization of the Php72 billion Disbursement Acceleration Program. The Department of Budget and Management announced that this program includes critical public works and agriculture infrastructure projects, housing, relocation and resettlement projects, additional funding support for local government units, rehabilitation of rail systems, projects that support peace efforts, healthcare insurance for indigents, and human resource development training, among others. As of November 8, 2011, the DBM has released PhP43.8 billion or 60.2 percent of the PhP72 billion Disbursement Acceleration Program.

Private sector will continue to buoy real estate, renting, and business activities due to the sustained expansion of offshoring and outsourcing sector, and the stronger appetite of the real estate market. Other services will benefit from the expected surge in tourism. Mining will continue to benefit from the expected higher prices of metals in the world market.

Global downside risks in the fourth quarter and the beginning of 2012 will continue to threaten our economic performance. Further deterioration in the Euro zone would negatively affect Asia’s growth. On the domestic front, the country’s concerns include the acceleration of public spending, strategies/programs/projects on how to stimulate domestic demand while at the same time quickly generating jobs, the fostering recovery of the agriculture and fishery sectors from the devastations of the recent typhoons.

In order to stimulate the economy, it is crucial that we further beef up public construction as well as undertake measures to improve the country’s trade relations. Given the strong growth of our Asian neighbours, the government will actively adopt policies to fully utilize the institutional set-up provided by the ASEAN and the country’s existing free trade agreements with Japan and China to increase the Philippine’s role in the regional production chain. We will also prioritize our work, together with the private sector, on the crucial measures to improve the country’s exports, particularly in terms of infrastructure and logistics. The diversification of exports could be sped up by strengthening efforts to secure markets for new products (e.g. preferential market access with duty-free or low duty rates for exports) as well as providing more effective marketing support.

The importance of stimulating the economy in the countryside cannot be discounted. In partnership with the local government units, we will implement policies and programs that could help spur more economic activities and create greater number of jobs like the introduction of innovative credit facilities particularly to agriculture and fisheries sectors, through cooperatives, micro-small-medium enterprises, and rural and thrift banks. We have recently signed with South Korea the Multi-Industry Cluster Project, an investment program that aims to promote agro-industrial development.

Although the Philippines path to higher and inclusive economic growth trajectory is currently greatly affected by external challenges and by natural disasters, the foundation for a better standard of living for many Filipinos has been set – there is improved governance and better respect for the rule of law, investments for improved human capital and infrastructure are increasing, and constraints to opportunities for greater economic activities and higher employment creation are given serious consideration. –http://www.neda.gov.ph/ads/press_releases/pr.asp?ID=1309