The Philippine economy slowed last year but its growth was still one of the fastest in Asia, the government reported on Thursday, with robust consumption remaining the biggest driver.
The last three months of the year saw gross domestic product (GDP) growth pick up to 6.3 percent, rising from 6.1 percent in the third quarter and boosting the full-year result to 5.8 percent.
While within the 5.7 percent to 5.9 percent forecast range in a Manila Times poll of economists, it was lower than the 6.1 percent recorded in 2014 and well below the government’s 7 percent to 8 percent target.
One of Asia’s top four
The National Economic and Development Authority (NEDA) said the 2015 result meant that Philippine growth was likely among the fastest growing in Asia next to India, the People’s Republic of China and Vietnam.
“Though this is lower than what we targeted for the year, this growth is respectable given the difficult external environment, the onset of El Nino, and the challenges in government spending in the first semester,” Socioeconomic Planning Secretary Arsenio Balisacan said.
The latest growth figure means a six-year average of 6.2 percent, he pointed out, the highest since the late ‘70s.
Stronger domestic demand
Balisacan said 2015 growth was driven by much stronger domestic demand as reflected by growth in government spending (9.4 percent) and in public and private investments (13.6 percent). Public construction, in particular, grew by 20.6 percent, while household consumption rose 6.2 percent.
“This growth in investment and consumption reflects optimism in the economy given the success of governance and economic reforms, which gave us ample space to overcome challenges such as weather-related disasters, global economic slowdown, as well as domestic uncertainties, especially those associated with the forthcoming elections,” he said.
While exports growth was lackluster at 5.5 percent compared to last year’s 11.3 percent, services exports were robust given the business process outsourcing (BPO) sector’s performance, Balisacan said.
On the supply side, the Philippine Statistics Authority said 2015 growth was led by the service sector, which expanded by 6.7 percent from 5.9 percent the previous year.
Both the industry and the agriculture sectors, however, decelerated—by 6 percent and 0.2 percent from 7.9 percent and 1.6 percent, respectively.
2016 growth, challenges
Going forward, Balisacan said he expected higher growth this year but warned that external and weather-related challenges would persist.
“With sound fundamentals and ongoing structural changes in the economy that make it more resilient to shocks, we can expect higher growth for 2016 as the global economy also picks up,” he said.
“Nonetheless, there are remaining challenges that the next administration will continue to confront. Given serious threats from climate change and the realities of a global economy, we cannot afford to be complacent.”
The Cabinet official said there was a need to build resiliency in each sector of the economy, including at the community and individual levels.
7% still achievable
The government, Balisacan said, remains optimistic that at least 7 percent growth will be achieved in the medium term.
“It is very achievable. We are of the view that 7 percent to 8 percent should still be our medium to long term goal, but we need to address the critical constraints to lift up the potential of the economy,” he said.
To support higher growth, the capacity of the economy has to expand by way of infrastructure development, efficient transport and logistics systems, and competent yet malleable human capital.
“Looking ahead, we are hopeful that the next leaders of this country will sustain the programs and reforms that have gathered significant gains over the years,” Balisacan said.
Following the release of the latest GDP data, private analysts from Barclays and Capital Economics said they were retaining their full-year forecasts for 2016.
Barclays economist Rahul Bajoria said the investment bank remained comfortable with its 5.5 percent estimate for the year.
“[U]pside risks from higher government and investment spending are mitigated by downside risks from a deteriorating external economy, which is weighing on export of goods and services,” he said.
Capital Economics senior Asia economist Daniel Martin said the Philippine economy looked set to gain more momentum in 2016.
Martin said the London-based research consultancy firm was leaving its growth forecast for 2016 at 6.5 percent and expected the pace to be maintained in 2017.
While the end of President Benigno Aquino 3rd’s six-year term cast some doubt over the medium-term outlook, “he leaves the economy in better shape than it has been for a long time, and we expect the Philippines to remain one of the region’s best performers at least for the next couple of years,” Martin said.
Standard Chartered Bank economist Jeff Ng said the bank was also retaining its 5.7-percent growth forecast for 2016.
“On the business front, there could be some moderate headwinds for investments,” Ng noted.
On the positive side, he said the Philippines is still likely to outperform most Asian economies this year because of strong consumer demand.
“If you look at the some positives of the economy, employment level are pretty high, while unemployment continue to trend down. Having more people being part of the labor force, that continued to provide upsize for consumption,” he said.
At the same time, Ng pointed out that the national elections this year would also provide additional boost to the economy as it will continue to support domestic consumption.
“We have estimated that there are some impact of election on sectors of manufacturing—printing and publishing in particular—on communications, private services, government services in order to organize the election,” he said.
“With this, we believe that the Philippines is entering 2016 from a position of strength,” Ng added.
BSP to maintain policy
The Bangko Sentral ng Pilipinas (BSP), for its part, said it did not see the need to adjust policy setting given the healthy fourth-quarter GDP figure of 6.3 percent and “an inflation outlook of a slow creep to within target over the policy horizon.”
“We will be monitoring developments, particularly any new policy actions from Chinese authorities, oil price movements and market reactions to these, to see if any need to tweak policy levers,” Governor Amando Tetangco Jr. said in a text message to reporters.