PHILIPPINE economic growth lost steam and grew by 6.4 percent in the first quarter of the year on slower government spending and a higher comparative base given last year’s election spending, which last year helped boost economic activity with the additional liquidity.
In the first three months of the year, the gross domestic product (GDP) moderated from 6.9 percent a year earlier and from 6.6 percent in the fourth quarter of 2016, the Philippine Statistics Authority (PSA) reported on Thursday.
The latest GDP results slipped by 0.1 percentage point from the government’s 6.5 to 7.5 percent target range for full-year 2017, and stood at the lower end of the 6.4 percent to 7.2 percent forecast by analysts polled by The Manila Times.
It was the slowest in five quarters since coming in at 6.3 percent in the fourth quarter of 2015.
“Our first quarter performance bodes well for the economy as it is broadly in line with our target of 6.5 percent to 7.5 percent for this year,” Socioeconomic Planning Secretary Ernesto Pernia said in a press conference held in Pasig City on Thursday.
“It is, however, lower than desiredly expected. And for this we were somewhat downcast, because we were expecting something like around the midpoint of the growth range of 6.5 percent to 7.5 percent,” Pernia noted.
Pernia, who also heads the National Economic and Development Authority (NEDA), said the base effects of 2016 in the form of election-related spending explains why the economy grew at a slower pace. “You would already know by now, the impact of which has already dissipated,” he said.
The changing of the guards of the government and reorientation of programs took time to settle, which slowed government spending for the quarter, the Cabinet official noted.
The government’s final consumption expenditure growth slowed to 0.2 percent in first-quarter 2017 from 11.8 percent a year earlier, Pernia noted in a presentation.
“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,” he said.
“Of course, this could also mean that we have benefitted from reforms that have been put in place by the previous administration,” he added.
Household spending and capital formation were also slower in the first three months of the year.
Household final consumption expenditure growth slackened to 5.7 percent as of end-March from 7.1 percent, Pernia noted.
Capital formation also slowed down to 7.9 percent 31.5 percent.
Still, the Philippines remains one of the strongest performers among emerging economies in Asia.
In the first quarter, the Philippines overtook Vietnam and Indonesia which grew by 5.1 percent and Thailand by 3.3 percent.
“We are only second to China’s growth of 6.9 percent while India’s number hasn’t come out yet,” Pernia said.
“On the demand or expenditure side, the economy remains strong, even with the slowdown in household spending and capital formation,” he said.
With global demand improving, growth in exports grew by 22.3 percent, the fastest since the third quarter of 2010, and services exports grew by 14.3 percent in the first quarter.
On the supply side, agriculture made a great comeback with a 4.9 percent growth rate after several quarters of negative growth, Pernia noted.
The services sector remains the main growth driver, expanding by 6.8 percent, while the industry sector managed to grow at a respectable pace of 6.1 percent on robust factory output despite the slowdown in construction and utilities, and declines in mining and quarrying, he added.
Pernia said the domestic economy is on track to keep its growth momentum with external trade on a path of recovery and the private sector staying optimistic about the Philippine growth story.
The government has been busy laying down a strong foundation for sustainable and equitable growth with an ambitious infrastructure program among the many reforms and programs under the Philippine Development Plan 2017-2022.
“It is important to ensure that government spending for both consumption and investment remains within the fiscal program, which is critical to sustain the growth momentum,” he said.
With the steady unfolding of the Build, Build, Build program in the coming months, the government expects construction activities and public spending to pick up sharply, consistent with the government’s aim to spend 5.3 percent of GDP this year for infrastructure and up to 7.4 percent by 2022, he stressed.
Pernia said the government remains on the lookout for external risks that may include market volatility from US interest rate normalization, geopolitical tensions in various regions, and the possible rise of protectionist sentiments in Western countries.
“We also need to ensure that inflation will remain modest for the next three quarters to keep demand strong. Our inflation in the first quarter at 3.2 percent was pretty high compared with first quarter of last year,” he said.
To sustain the growth momentum of exports, it is important to ease government regulation, strengthen market intelligence gathering with the help of the private sector, and maximize trade agreements and economic groupings, especially with Association of Southeast Asian Nations neighbors, the Cabinet official noted.
“We are off to a steady start. We aim to gain a strong footing in the succeeding quarters as we move forward with plans and programs included in the Philippine Development Plan, which will be formally launched on June 2, 2017 at the SMX convention center. We are inviting all of you to join us in the event. We aim to follow through and we aim to be resolute to finish strong and well within our targets,” he said.