Economy grows fastest in three years

By Mark T. Amoguis with Melissa Luz T. Lopez, Businessworld, Jan. 27, 2017
Researcher

THE PHILIPPINE ECONOMY grew at a three-year high in 2016, closing the period near the upper end of the official target range and providing impetus to meet 2017’s higher goal.

In a press conference on Thursday, National Statistician Lisa Grace S. Bersales said the country’s gross domestic product (GDP) — the total amount of final goods and services produced in the country — grew by 6.6% in the October-to-December period.

The fourth-quarter print marked the slowest expansion in a year that saw a downwardly revised seven percent in the third quarter, but was higher than the 6.5% recorded in 2015’s fourth quarter.

“Let me note that the last quarter growth of an election year is usually slower than the first half due to the transition of government, and as investors adopt a ‘wait-and-see’ attitude,” Socioeconomic Planning Secretary Ernesto M. Pernia said during yesterday’s briefing.

The performance towards the end of 2016 brought the full-year growth to 6.8%, perching closer to the higher end of the government’s 6-7% target for the year.

Full-year growth in 2016 was the highest reading in three years since the 7.1% expansion in 2013.

Both fourth-quarter and full-year figures fell below the 6.9% median estimate for both periods in BusinessWorld’s poll of economists last week.

“We are likely either the third or fourth fastest growing major Asian emerging economy in the fourth quarter after China’s 6.8% and Vietnam’s 6.7%. For the full year of 2016, we could be the second fastest, with China growing at 6.7% and Vietnam at 6.2% for the whole year,” said Mr. Pernia, who is the National Economic and Development Authority’s (NEDA) director-general.

“Domestic demand, in terms of investment and consumption, continued to fuel growth for the fourth quarter of 2016.”

On the expenditure side, household spending, which accounts for 72.5% of GDP, rose by 6.3% in the final three months of 2016, slower than the 6.5% logged in the same period in 2015.

The NEDA chief attributed this to high consumer confidence, modest inflation and interest rates, and improving labor market conditions.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. told reporters in a mobile phone message that “[t]he details show that domestic demand continues to be robust,” adding that “[t]he government thrust on infrastructure spending should provide a solid base for the economy to meet the 2017 growth target.”

Capital formation, meanwhile, grew by 15% in the fourth quarter of last year from 13.3% in 2015.

Export of goods and services grew by 10.4%, slower than 10.9% in 2015, while imports rose by 15% from 14.9%.

At the same time, however, government spending growth slowed to four percent from 15.8%.

“Government spending decrease may have come from the fact that government expenditures programmed in the Aquino budget were already unloaded at the start of the year or the first and second quarters. We know that the current administration only took over July last year,” Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said in an e-mail interview.

Industry, which accounted for 34.3% of GDP in last three months of 2016, rose by 7.6% from 6.5% in 2015.

According to Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank), industry led the surge last quarter because of upbeat construction activity.

Construction grew by 11% in the last quarter from 8.2% in 2015. “The construction sector received a boost from low interest rates, which makes loan financing cheaper. Strong domestic demand also contributed to the increase,” Landbank’s Mr. Dumalagan said.

Services, which accounted for 56% of GDP, grew by 7.4% in the last quarter, slowing down from 7.8% in the same period in 2015.

Agriculture fell 1.1%, sharper than the 0.2% contraction the previous year. “Agricultural growth was a letdown as it returned to negative territory, reeling from the effects of typhoons Karen and Lawin during the fourth quarter of 2016,” NEDA’s Mr. Pernia said.

OUTLOOK

Noting that “[t]he inflation outlook also remains manageable,” BSP’s Mr. Tetangco said: “Thus, there is no real pressing need to deviate from current stance of monetary policy.”

“That said, we continue to monitor external developments that may affect our growth dynamics and financial markets. We will adjust policy levers as and when necessary.”

The central bank has maintained monetary policy since September 2014, except for operational cuts introduced in June as it migrated to using an interest rate corridor scheme that did not constitute an actual change.

Going forward, state economic managers believe 2016’s GDP growth pace put the economy squarely on the path towards this year’s target.

“Overall, given this growth in 2016, we believe that the target of 6.5-7.5% for 2017 is highly likely,” NEDA’s Mr. Pernia said, noting further that the government aims to spur growth to 7-8% from 2018-2022.

In a statement, Finance Secretary Carlos G. Dominguez III said the economy is “well positioned” to grow between 6.5-7% this year, the lower end of the government’s target, riding on the resolve to “further strengthen its macroeconomic fundamentals” and “maintain solid buffers” against external headwinds that could impact growth prospects.

A number of bank economists said GDP is poised to climb faster this year on the back of bigger fiscal spending and investments.

“This pickup in growth momentum in the latter part of the year supports our view that 2016 was not solely about the temporary boost from election-related spending; instead, it also reflects a sustained rise in investment spending which has helped to offset weak external demand,” Nomura analysts Euben Paracuelles and Lavanya Venkateswaran said in a report.

Capital Economics Senior Asia Economist Gareth Leather added that the Philippine government’s infrastructure push would be a “key driver of growth” for the years ahead, pencilling in a 6.5% rate for 2017.

“Looking ahead, we expect 2017 GDP growth to rise to 6.9% on the back of increased fiscal spending. The Duterte administration’s renewed push for infrastructure is aimed at diversifying economic development away from the National Capital Region,” ANZ Research analyst Eugenia Fabon Victorino said separately, noting that this would set the stage for a rate hike from the BSP in the third quarter.

Another economist expects growth to remain above 6%, although slightly slower than the last year’s pace. “We reckon that it is going to be extremely difficult to match last year’s performance, even if the government continues to be supportive in its fiscal policies. For now, we maintain our 2017 GDP forecast at 6.4%, with a slight upside bias,” DBS Group Research economist Gundy Cahyadi said. —