The Market Monitor Minding the Nation's Business
By Riza Lozada
The continuing neglect of the agriculture sector and the erratic performance of the manufacturing sector are causing concern that the Philippines’s strong economic growth that hit 6.9 percent in the first quarter of 2016 would not be sustained.
Prof. Benjamin Diokno of the University of the Philippines School of Economics, said the growth “spurt” during the first three months was mainly the result of election spending, based on the 8.7-percent growth for industry, 7.9-percent growth for services, and the disappointing 4.4-percent contraction for agriculture.
He said strong growth in the first quarter was not surprising, but added that he expected gross domestic product (GDP) growth in the second half to slow down as the boost from the elections wears off.
“The negative growth of agriculture is due to the severe impact of El Niño and the neglect of the sector,” said Diokno, a former budget secretary.
He said full-year GDP growth is expected to be from 6.1 percent to 6.2 percent, against the government’s target of a 6.8-percent to 7.8-percent expansion.
Erratic
The Oxford Business Group (OBG), in a country assessment, also indicated that the performance of the industrial or mainly the manufacturing sector remains erratic.
The sector, however, continues to drive growth, with a contribution of 23.2 percent of GDP in 2015, up from 22.8 percent two years ago, OBG said in its report.
Citing data released by the Bangko Sentral ng Pilipinas (BSP), OBG noted that the manufacturing sector outweighed the service sector in terms of contribution to the economy.
The report noted that the local manufacturing sector remained geared to supplying domestic markets with only the electronics subsector targeting exports.
“Despite putting in a strong performance in 2014, manufacturing growth contracted in 2015, recording 5.7-percent growth for the year,” it noted.
The Philippines remained highly dependent on its manufacturing industry for the majority of its foreign exports, with manufactured products accounting for eight of the top 10 export categories in the first half of 2015, the report noted.
Bulk of exports
The electronics segment continued to make up the bulk of manufactured exports, OBG said, noting that this segment accounted for roughly half of total exports, with $26.29 billion worth of exports for 2014, based on BSP data.
The second top export commodities were machinery and transport equipment with $5.36 billion, followed by other electronics, with $2.97 billion; wood products, $2.96 billion; and chemicals $2.77 billion.
“Although the electronics sector has diversified into a variety of new products and market in recent years, exports remain heavily weighted toward semiconductors, which accounted for 71.9 percent of all electronics exports in the first five months of 2015,” OBG said, citing figures from the Semiconductor Electronics Industry of the Philippines (Seipi).
The Pacific Rim nations continue to dominate as trade partners for the Philippines’s manufactured electronics.
Japan ranked first in top export markets, followed by the United States, China, Hong Kong, and Singapore.
Based on its findings, the OBG said, “One of the most common grievances aired by a wide range of industries is the superfluous production costs incurred as a result of inadequate infrastructure.”
It also said these costs are related to both the transportation network, which is currently insufficient in terms of land, sea and air connectivity, as well as the electricity sector, which is likewise lacking in terms of both availability and price.
“Due to the limited number of modern ports and supporting infrastructure, alongside delays and fees incurred as a result of congestion, companies are compelled to pass on these additional cost to their customers,” the OPG added.
Slowdown
For its part, the National Economic and Development Authority (Neda) said a general slowdown in the global manufacturing sector was reflected in the Philippines’s total earnings from manufactured products, declining by 11.1 percent in March.
Total earnings from manufactured products dropped by 11.1 percent to reach $4.0 billion in March, from $4.5 billion in the same period last year, Neda said, citing government figures.
“This is a reflection of a general slowdown in the global manufacturing sector. On the upside, wood manufactures, and iron and steel posted positive growth rates in March 2016. Electronic exports also reached its tenth consecutive month of positive growth during the period,” said Socioeconomic Planning Secretary Emmanuel Esguerra, who is also Neda director-general.
He said the driver for growth in the first quarter was investment mainly in durable equipment.
“Fixed capital, which is a better indicator of investment growth, registered a 25.5-percent growth and contributed 5.8 percentage points to real GDP growth. Construction also grew faster at 12 percent during the period, compared with 7.6 percent in the last quarter of 2015 and 4.5 percent in the first quarter of 2015,” Esguerra said.
“Public construction saw a reversal of its 23-percent contraction last year to 39.9 percent in the first quarter of 2016 as capital outlays of big departments posted significant increases. Private construction also picked up by 7.1 percent, from only 1.1 percent last year,” he added.
“All these investments give us confidence that the economy will continue to perform well in the succeeding quarters of the year and beyond,” the Neda chief said.