The Philippine economy grew 6.4 percent year-on-year in the second quarter of 2014, gaining pace since the slowdown seen in the first quarter but still lower than the year-earlier rate, official figures just released by the National Economic and Development Authority (NEDA) and the Philippine Statistics Authority (PSA) show.
Growth in gross domestic product (GDP) in the April-June period this year accelerated from the revised 5.6 percent recorded for the January-March quarter, but still lagged the year-earlier rate of 7.9 percent.
For the first half of 2014, cumulative growth reached 6.0 percent, compared with 7.8 percent in the corresponding period of 2013, according to the data.
“This higher growth rate, coming from a high base a year ago shows that the economy is back on the higher trajectory of growth registered in 2012 and 2013 and bodes well for economic growth for the rest of 2014,” Socioeconomic Planning Secretary and NEDA Director General Arsenio Balisacan told reporters on Thursday.
Balisacan said the Philippines remains as one of the bright spots in the region, the second fastest growing economy among major Asian countries for the period. The country tied with Malaysia’s performance and topped the second-quarter economic performance of the other major members of the Association of Southeast Asian Nations. Indonesia posted 5.1 percent growth and Thailand, 0.3 percent, in the same period.
Supply side strong, except construction
On the supply-side, most sectors demonstrated strong growth, except for construction.
Agriculture grew by 3.6 percent, a rebound from a 0.2 percent contraction in the second quarter last year due to the big turnaround in major crop harvests. Industry expanded by 7.8 percent, partly moderated by the weak performance of the construction industry.
“Although private construction increased by 12.7 percent during the second quarter compared to last year, public construction … recorded a significant reduction in the second quarter,” Balisacan said.
The decline in public construction was traced to lower spending in infrastructure and other capital outlays, particularly in the months of April and May 2014, as major government agencies posted lower-than-programmed disbursements.
There was notable development in the gross value added in manufacturing, which accelerated to 10.8 percent in the period, buoyed by strong external demand and household final consumption, the Socioeconomic Planning secretary said.
Increased demand for business process management and the expansion of economic activities accounted largely for the 6 percent expansion in the services sector.
Weak govt spending
On the demand-side, net exports contributed 4.2 percentage points and household consumption accounted for 3.6 percentage points to the growth rate amid a more positive global economy, favorable business sentiment, and robust inflows of overseas Filipinos remittances.
Balisacan said the strong household spending in the second quarter reflects the still upbeat consumer sentiment in the country. However, he pointed out that the slowdown in disbursements in personal services and maintenance and other operating expenditures accounted for flat growth in government consumption.
“Certainly, government underspending in this quarter is a cause for concern. But we assure you that the government is aware of this and is taking the right steps to address bottlenecks in the implementation of critical programs and projects, particularly key infrastructure projects,” he said.
Achieving full-year target
Overall, the NEDA chief said there is still a strong likelihood that the country will achieve the full-year growth target of 6.5 to 7.5 percent.
Balisacan said preliminary indications of the Business Expectations Survey (BES) of the central bank show that businesses are maintaining their positive outlook on the economy.
The BES is a quarterly survey of firms conducted by the Bangko Sentral ng Pilipinas. Survey results for the third quarter are due out on Friday.
Despite this, Balisacan said the government is aware that market players want more positive signals, in particular the public sector’s key role in infrastructure spending and consumption of non-durables.
“We would like to assure you that the identified administrative bottlenecks that contributed to the underperformance of the government sector are being addressed. In fact, disbursements in June increased by almost 45 percent and we are confident that the government will catch up on its work program for the year,” Balisacan said.
While expressing elation over the 6.4 percent second quarter GDP growth, Malacanang echoed Balisacan’s assurances. “The President has also directed the Cabinet to work with a sense of urgency in clearing the administrative bottlenecks that brought about a slowdown in government spending during the first half of the year,” Presidential Communications Secretary Herminio Coloma Jr. said in a statement.
The Palace official said that the continued growth of the Philippine economy will be sustained by his administration through intensified programs on people development and social protection.
Aquino, during an interview with Bombo Radyo on the eve of national Economic Development Authority (NEDA) announcement regarding the performance of the Philippine economy for the second quarter, said: “…paniwala ko ang pinakaimportante talaga, the greatest resource of the Philippine nation is the people. So, marami tayong investments sa mamamayan…”
The President said that the focus on empowering the people is manifested by the expansion of the conditional cash transfer program to enable children of beneficiary families to finish high school thereby enhancing their employability. He also cited the 300 percent increase in the health budget, which has broadened universal health coverage to include catastrophic illnesses.
For the central bank, the second quarter growth shows the country’s continued resiliency despite the strong base effect.
In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the second quarter growth print backs the BSP’s view that the economy has the capacity to absorb the recent adjustments in policy settings.
“BSP will continue to monitor developments and will make further adjustments, as necessary, to help keep inflation within the government’s target range over the policy horizon,” he said.
For the Department of Finance, the second quarter GDP growth demonstrates the diversity of the Philippine economy with varied sectors of the economy leading the growth.
“This is positive news for our country as the second quarter figure shows the potential of the Philippines to sustain inclusive economic development as new sectors of the economy begin to pick up speed. But, we can do better,” said Finance Secretary Cesar Purisima.
Purisima added that the government is confident the fundamentals of rapid growth are in place and some adjustments in government disbursements will bring growth to a higher path.
Risks to growth
Economists also shared the government’s optimism about the full year GDP growth but noted problems such as port congestion, slow public spending particularly in infrastructure, and power shortage could still drag on the country’s economic gains.
University of the Philippines economics professor Benjamin Diokno believes the official growth target of 6.5 percent to 7.5 percent now appears to be optimistic but noted that the consensus forecast of 6.0 percent appears to be more likely.
“Rather than seeing the economic result as slowing down, it is more realistic to see it as normalizing. Last year’s growth rate was unusually high. It included the election effect. Note that the economy peaked in 2004, 2007, 2010, 2013—all election years. I think the long- term growth of the Philippine economy would be in the neighborhood of 5 percent to 6 percent,” he said.
In the second half of the year, Diokno said that major risks to the economy would be El Niño, power shortages, and delays in public infrastructure spending, including public-private partnership projects.
On the other hand, Bank of the Philippines associate economist Nicholas Antonio Mapa noted that the second quarter growth seems more broad based as the overall GDP print was driven by a stronger contribution from the industrial and agricultural sectors, with the services sector continuing to supply its usual cushion for growth.
“However, I still think the overall target of 6.5 percent to 7.5 percent is optimistic, but I guess that’s what targets are for. I would, however, have to caution that our growth numbers (on the expenditure side) gained markedly due to a ‘net exports’ print, which was skewed somewhat because of unusually strong exports coupled with a contraction in our imports,” he said.
In this regard, Mapa warned that if imports would increase in the coming months there will be a trade surplus reversal that would eventually become a drag on overall growth in the coming quarters.
Focusing on the 6 percent first half GDP, Accord Capital Equities Corp. analyst Justino Calaycay said that the figure prove not only true resiliency but more so the strength of the domestic fundamentals of the Philippine economy.
“A mild surprise, if I may say so, is the flat public spending. We thought there would be even a marginal pick up in the numbers. Nevertheless, this is understandable in light of several issues and controversies, real or imagined, on the use, misuse and abuse of public funds, and of course, the bottlenecks mentioned by Secretary Balisacan,” he said.
“Our optimism for the prospects moving forward borrows from the fact that there remains some ‘laggards’ in some variables and a full recovery in these items could boost the numbers in the next two quarters,” he added.
With JOEL M. SY EGCO