The Palace is confident that the country will sustain its 6.5 percent economic growth until the end of the year as government ramps up spending for infrastructure projects and social needs.
“We welcome this morning’s announcement by Socioeconomic Planning Secretary Ernesto Pernia. Indeed, our growth rate is on track,” Presidential Spokesman Ernesto Abella said in a statement.
The 6.5 percent growth falls within the full-year target of economic managers and puts the country as one of the fastest growing major economies in Asia, Abella said.
“We would sustain our pace for the rest of the year as we continue to lay down the foundation of a comfortable life for all through increased investments in infrastructure and social protection,” he added.
The economy grew by 6.5 percent in the second quarter, accelerating from 6.4 percent in the first three months of 2017 due largely to government spending amid a slowdown in private investments.
Growth a year earlier was 7.1 percent. Ahead of Thursday’s announcement, government officials had held out hope of a 7 percent or better performance.
The result was at the low end of this year’s 6.5-7.5 percent gross domestic product (GDP) growth target. Year to date, the economy’s growth pace was just off the 2017 goal at 6.4 percent.
Analysts polled by The Manila Times had forecast second quarter growth to range from 5.8 percent to 6.8 percent.
“With our country growing at 6.5 percent in the second quarter of 2017, I am pleased to inform you that we remain as one of the best-performing economies in Asia,” Pernia said.
Pernia last week said that 7 percent or better growth was possible.
The Philippines, he said, had overtaken Vietnam’s 6.2 percent growth and Indonesia’s 5 percent, making the country either the second or third fastest growing major Asian economy, next only to China whose growth rate was 6.9 percent in the second quarter.
“Malaysia and Thailand have not yet released their data, but we can expect that they will be lower than the performance of the Philippines for this quarter,” Pernia said.
The National Economic and Development Authority (NEDA) chief said that government consumption expanded by 7.1 percent from a meager 0.1 percent in the first quarter.
“This shows a marked improvement in the absorptive capacity of our government agencies,” he said.
A year earlier it was at 13.5 percent.
Slow private investment
Household expenditures, meanwhile, grew by 5.9 percent in the second quarter, down from the 7.5 percent recorded a year earlier.
Private construction weighed on total investments in construction, which grew by just 7.3 percent compared with 17.9 percent in the previous year.
Private construction, which accounted for 63.3 percent of total construction investments, saw growth slow to 4.7 percent from 10.8 percent.
Public construction grew by 12 percent, also slower compared with the 33.5 percent growth in 2016.
“The private investment performance is more relative to government spending than absolute slackening,” Pernia said.
“It’s just because the government spending picked up rather significantly so by comparison, the private sector did not look as robust,” he explained.
“Taking the last quarter’s GDP growth, where the government’s spending performance was lackluster but where the private sector stepped up, and then this quarter’s GDP growth, where government really stepped up but where private sector slackened, just think what could happen if both government and private sectors together exerted that extra effort.”
On the supply side, Pernia reported that industry grew by 7.3 percent, supported by expansions in the manufacturing, and mining and quarrying sectors.
The agriculture sector continued to recover from El Niño, growing by 6.3 percent.
Services continued to be a primary driver, despite slower growth of 6.1 percent relative to last year’s 8.2 percent and the previous quarter’s 6.7 percent.
Target within reach
The NEDA chief said with first half growth of 6.4 percent, the full-year result will likely settle between the lower end and mid-range of the 6.5-7.5 percent target.
“[W]e only need to grow by 6.5 percent to meet at least the lower bound of our full-year target of 6.5 to 7.5 percent. With all of us exerting all efforts, and moving in sync, to improve our economic performance, I can see the country demonstrating a more impressive performance for the rest of the year and even over the medium term,” Pernia said.
Finance Secretary Carlos Dominguez 3rd, meanwhile, said the 6.5 percent result was “solid proof” that the government’s “unparalleled” investment strategy, anchored on the ‘Build Build Build” program, had started to make an impact.
“This is solid proof that the year-old administration has been making the right moves at the right time in pursuit of President Duterte’s socioeconomic agenda on high -- and inclusive -- growth,” Dominguez said.
“With the upturn in state spending beginning in the year’s second quarter, President Duterte’s unparalleled investment strategy anchored on the ‘Build Build Build’ program has started to pick up steam,” he added.
“We are optimistic that the accelerated state spending and project implementation would keep the Philippines in the club of Asia’s fastest-growing economies as it sustains the momentum for the government-set expansion rate of 6.5 to 7.5 percent this year and a higher 7 to 8 percent in 2018 and onward.”
Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr., meanwhile, said the second-quarter GDP uptick confirmed the central bank’s view that growth remained robust.
“The GDP growth is in line with the BSP’s expectations and is consistent with the within-target inflation forecast for this year. The firm economic momentum during the first half of the year alongside favorable business and consumer sentiment should augur well for the expansion of the economy over the near to medium term,” Espenilla said.
The central bank chief gave assurances that monetary authorities were continuing to closely monitor economic and financial developments and stood ready to act if needed preserve price and financial stability.
Analysts mixed
Analysts, meanwhile, had mixed views regarding full-year results. Two maintained their GDP projections while another announced a cut.
Australia’s ANZ Research said it now expects 2017 GDP growth to average 6.5 percent instead of 6.9 percent.
“Despite the slowdown in private consumption growth, strong investment and the improvement in exports will remain supportive of growth. However, we are increasingly cautious of the quality of growth if real estate and construction continue to drive activity,” ANZ Research economist Eugenia Victorino said.
She said that considering the rising imbalances of strong credit growth, excessive activity in the real estate sector and current account deterioration, ANZ was reiterating its view that a monetary policy tightening is inevitable.
“We still expect hikes in the interest rate corridor, commencing with a 25bps [basis points] increase in the fourth quarter,” Victorino said.
Singapore’s DBS, meanwhile, said it did not see a compelling need to adjust its 2017 forecast of 6.4 percent.
“While private consumption growth came in better than our expectations, and a notable one in that it came on the back of the high base effects from second quarter of 2016, investment growth actually did slightly worse than our expectations,” DBS economist Gundy Cahyadi said.
“Certainly, however, upward risks remain. We are encouraged by the strong showing in both agriculture and manufacturing sectors. The manufacturing sector has continued to receive a boost from export demand, and this has proven to be a constant positive in recent years,” he added.
Similarly, IHS Markit said the Philippine economy would maintain rapid growth at 6.4 percent.
“Over the next 12 months, the GDP growth outlook will be supported by significant increases in infrastructure spending, with total infrastructure spending of P1.13 trillion targeted for 2018, with transport and social infrastructure being key priorities,” said IHS Markit Asia Pacific chief economist Rajiv Biswas.
“The ability of the Duterte administration to deliver such large increases in infrastructure spending has been helped by the tremendous progress made by successive Philippines governments since 2004 in the task of implementing fiscal consolidation, helped by the rapid pace of GDP growth and prudent fiscal management,” he noted.
LLANESCA T. PANTI