Economic expansion slowed in Q1

By: Ben O. de Vera, Philippine Daily Inquirer, May 19, 2017

The first-quarter GDP growth was next to China’s 6.9 percent and surpassed the rate of growth in most of the emerging Asian economies, Socioeconomic Planning Secretary Ernesto M. Pernia said in a press conference.

However, the first-quarter figure was below the 6.8 percent a year ago and the 6.6 percent a quarter ago. It was also the slowest growth since the 6.3 percent posted in the fourth quarter of 2015, Philippine Statistics Authority data showed.

“Our first-quarter performance bodes well for the economy as it is broadly in line with our target of 6.5-7.5 percent for this year. It is, however, lower than expected, and for this we were somewhat downcast because we were expecting something around the midpoint of (the target) growth range,” said Pernia, who also heads state planning agency National Economic and Development Authority.

Pernia blamed “base effects,” pointing out that “growth last year was high due to election spending, the impact of which has already dissipated.”

PSA data showed that the increase in government spending on public goods and services slowed to 0.2 percent year-on-year in the first quarter from 11.8-percent jump a year ago.

According to Pernia, “the changing of the guard in the government and reorientation of programs take time to settle, and this slowed government spending for the quarter.”

“Note, however, that this was better than during the previous administration where government consumption spending and public construction contracted by about 15 percent and 37 percent, respectively. Of course, this could also mean we have benefited from reforms that have been put in place by the previous administration. This further demonstrates the strategy of the Duterte administration, which is to sustain good practices of previous administrations, and improve upon or correct those that require correction or improvement,” Pernia said.

Neda Undersecretary Rosemarie G. Edillon said public construction was expected to catch up in the next few quarters as the government was scheduled to roll out more infrastructure projects under its “build, build, build” mantra launched last month.

The government plans to roll out more than P3.6 trillion worth of infrastructure projects from 2018 until 2020 while also jacking up to 75 from 55 the number of so-called flagship, “game-changing” projects that the administration aims to start and complete before 2022.

A total of P8 trillion to P9 trillion will be spent by the Duterte administration in the next six years to build vital infrastructure such that the share of infrastructure spending to GDP will rise from 5.3 percent this year to 7.4 percent in 2022.

Also, the Neda chief said the “pretty high” rate of increase in prices of basic goods during the first three months tempered economic growth.

Based on PSA data, household expenditure grew 5.7 percent in the first three months, slower than the 7.1-percent growth recorded in 2016.

Inflation averaged 3.1 percent in the first quarter, a little past the midpoint of the government’s 2-4 percent target range for 2017. In contrast, the average inflation rates in the past two years were below 2 percent.

“Incidentally, the main factor bringing up inflation had to do with food prices, including rice. That’s why we have to be very careful about having enough buffer stock of rice especially during the lean months,” the Neda chief said.

“With improving global demand, growth in exports was robust. Exports of goods grew by 22.3 percent, the fastest since the third quarter of 2010, and exports of services grew steadily by 14.3 percent in the first quarter of the year,” Pernia noted.

“On the supply side, agriculture made a great comeback with 4.9-percent growth rate after several quarters of negative growth or decline, contraction of the agriculture sector. The services sector continued to be the main driver of growth as it grew by 6.8 percent. The 6.1-percent growth in industry also remained respectable with the boost in manufacturing, although tempered by the slowdown in construction and utilities, and decline in mining and quarrying production,” Pernia added.

For the remainder of the year, Pernia said “the domestic economy is poised to maintain its growth momentum with the recovery of external trade and private sector’s steadfast optimism.”

“The government has also been busy laying down a strong foundation for sustainable and equitable growth with an ambitious infrastructure program, among the many reforms and programs contained in the Philippine Development Plan 2017-2022, among which are infrastructure spending and as well as other government programs, including investment in human capital,” Pernia said, referring to the Duterte administration’s medium-term socioeconomic blueprint.

Still, Pernia said the economy should be shielded from external downside risks such as market volatility from continuing US interest rate normalization, geopolitical tensions, as well as looming protectionism in the West.

Other risks to economic growth include a possible El Niño, according to Pernia, which could be countered by continuous production support for farmers, timely importation of rice as well as distribution of seeds.

For outgoing Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr., “the outlook for growth remains strong, even as the first-quarter outturn is slower than what the market anticipated.”

“The BSP will continue to provide an operating environment that would support non-inflationary domestic demand. As in the past, we will continue to calibrate our policy levers so these provide the appropriate incentive structure for businesses to plan with risk-adjusted returns in mind,” Tetangco said in a text message to reporters.

“It’s (first-quarter GDP growth was) lower than expected although it remains robust. What is good is that exports have started to recover and contribute to overall output growth in support of domestic demand. The challenge is to further strengthen infrastructure spending to help boost jobs and increase income as well as extend urbanization and economic activities in key areas from Luzon to Visayas and Mindanao. Hence, legislative action on the tax reform package is critical so that infrastructure and economic activities are sustained with actual public revenues. Productivity and efficiency enhancements are critical today to ensure our competitiveness and sustain the growth momentum,” BSP Deputy Governor Diwa C. Guinigundo said in a separate text message.
Finance Secretary Carlos G. Dominguez III, meanwhile, remained optimistic that the full-year growth target remained achievable.

“GDP expansion in the year’s first three months illustrates that growth remains steady and could gain momentum for the rest of the year partly as a result of this administration’s ‘Dutertenomics’ strategy to stimulate economic activity and achieve financial inclusion for all Filipinos in the long haul via an aggressive expenditure program on infrastructure, human capital formation and social protection,” Dominguez said in a statement.

“Solid macroeconomic fundamentals plus strong domestic consumption and investment sentiment have enabled, and will continue to enable, our country to sustain its pace as one of the world’s fastest-growing economies on the Duterte watch despite the ever-changing global market conditions,” Dominguez added.

Moving forward, Dominguez said “we hope our legislators could help Malacañang sustain the growth momentum this year and onwards by acting soon enough on the first package of the comprehensive tax reform program that is now pending in the Congress, as it will help guarantee a steady revenue stream for the Duterte administration’s high—and inclusive—growth agenda.”