The Philippine economy grew at its slowest quarterly pace in two years, decelerating sharply to 5.7 percent in the first three months of 2014 from 7.7 percent a year earlier due to disruptions caused by Super Typhoon Yolanda.
The country has slackened to third place in Asia’s growth race, falling behind Malaysia, which achieved economic growth of 6.2 percent in the January to March period, and China, which grew 7.4 percent.
The government’s economic planning body traced the slowdown to the damage on production capacities and disruption to agricultural supplies caused by the super typhoon that lashed Eastern Visayas in the central Philippines late last year.
Figures released by the National Economic and Development Authority (NEDA) and the Philippine Statistics Authority (PSA) at a joint briefing on Thursday showed the rate of growth in the country’s gross domestic product (GDP) for the first quarter stood below the government’s 6.5-percent to 7.5-percent full-year target.
“The relatively slow growth is expected, given the magnitude of the destruction in production capacity. In agriculture, permanent crops, notably coconuts, were felled. Damage to agricultural output also disrupted supply chains, which may partly explain why food manufacturing output also declined,” Socioeconomic Planning Secretary Arsenio Balisacan said.
The first-quarter GDP rate also marks the lowest quarterly figure recorded since the fourth quarter of 2011, when the economy expanded by 3.7 percent.
National Statistician Lisa Grace Bersales said first-quarter growth was driven by the services sector, which posted a 6.8 percent increase, followed by industries, which grew 5.5 percent. Agriculture showed the slowest growth pace of 0.9 percent.
Balisacan, also the NEDA director-general, said in a news briefing tourism and insurance also decelerated in the quarter as the sectors continued to reel from the impact of last year’s natural calamities.
Besides the effects of natural disasters, prudential lending measures imposed beginning in the fourth quarter of 2013 to prevent the formation of a bubble in the real estate sector also weighed on the economy, with private construction activity dampened by such measures, he added.
“Nevertheless, the Information Technology-Business Process Management and the export-oriented manufacturing [sector]remained resilient. Post-disaster recovery and reconstruction efforts have also induced growth in logistics, transport, and social work,” the NEDA chief said.
Reassessing 2014 targets
Some private economists recognize the slow performance of the economy during the quarter and expressed doubts about the government’s full-year growth target.
Joey Cuyegkeng, senior economist at ING Bank in Manila, said his team is reviewing the bank’s 2014 growth forecast of 6.8 percent for a possible downgrade.
“One disappointment is over government consumption, which posted a measly 2
percent year-on-year growth in the first quarter of 2014. We were expecting more robust growth since the monthly fiscal balance reports of government pointed to higher spending,” he said.
Cuyegkeng acknowledged that the natural disasters may have contributed to the weaker-than-expected first-quarter GDP result. The economist, however, also pointed out the possibility that problems with the rehabilitation program for the disaster-affected areas may have also contributed to the weaker-than-expected government construction growth.
“It is possible that government construction may have been also affected by the disaster and politicking,” he said.
University of the Philippines economics professor Benjamin Diokno predicts economic growth for the entire year will settle below 6 percent.
“Private construction has contracted in the first quarter. Public construction has to pick up the slack. But the third quarter is usually bad for construction because of the rains and floods. PPP [public-private partnership] projects have to come in a big way in the last quarter. But I’m not too optimistic,” he said.
For the second quarter of the year, Diokno sees GDP growth likely slowing further to less than 5 percent.
“The second quarter is two-thirds over. Agriculture is expected to be tepid as a result of El Niño, combined with slow rehabilitation activity,” he said.
Diokno also noted that the natural disasters that usually hit the country provide an opportunity for enhancing growth if the implementation of the P120-billion reconstruction program can be accelerated.
This opportunity, however, is somewhat wasted as the second quarter is almost over, while the third quarter is not an ideal time for building and reconstruction since it is a rainy period, he said.
Despite the first-quarter slowdown, the government remains optimistic about its full-year growth target. Balisacan said the growth momentum is likely to strengthen in the near term, notwithstanding the risk and challenges the economy faces.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said he believes that although slower, the rise in GDP shows the economy is still able to grow despite going through natural disasters.
The prudent measures put in place by the central bank are aimed at ensuring that growth in the vital sectors of the economy, including real estate, is healthy and sustainable over the longer term, he said.
“We will continue to watch global/domestic developments, refine monetary policy settings and deploy macro-prudential rules as appropriate, to keep liquidity and credit growth rates at levels that will continue to support sustained economic growth in a low and stable inflationary environment,” Tetangco added.
Gil Beltran, Department of Finance chief economist, said the full-year growth target of 6.5 percent to 7.5 percent may still be reached with the help of continuing structural reforms.
“Confidence generated by these reforms will bring about a rebound in the next quarters,” he said.
Beltran said the ongoing reform measures include implementation of the public-private partnerships, the improving ease-of-doing-business indicators, investor response to credit upgrades and preparations for the Association of Southeast Asian Nations (Asean) economic integration.
Budget and Management Secretary Florencio Abad said the Philippines still proved to be one of Asia’s best-performing economies, despite the volatility of the global markets and the blows the domestic economy had to absorb during the previous year.
“Ours is a position of studied optimism, where we have a full appreciation of the economic risks in our purview, as well as of the country’s immense potential for robust development in the next three quarters,” he added.