The Market Monitor Minding the Nation's Business
By Luis Leoncio
The lower-than-expected 6.4 percent growth in the first quarter is not a source of worry for President Duterte’s economic managers, as the country remains one of the strongest performers among major emerging economies in Asia.
The gross domestic product (GDP) growth in the first quarter was higher than both Vietnam’s and Indonesia’s 5.1-percent growth and Thailand’s 3.3-percent, and second only second to China’s 6.9-percent growth.
“Our first quarter performance bodes well for the economy as it is broadly in line with this year’s government target of 6.5-7.5-percent. It is, however, lower than desiredly expected, and this may be explained by the base effects. That is, growth last year was high due to election spending, the impact of which has already dissipated,” Socioeconomic Planning Secretary Ernesto Pernia said.
Pernia noted the changing of the guards of the administration and reorientation of programs may have a lot to do with the slowdown in government spending which was a major factor for the lower-than-expected first quarter growth.
A new administration typically take some time to settle, and this slowed government spending for the quarter.
“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.
On the demand or expenditure side, the economy remained strong, even with the slowdown in household spending and capital formation. With improving global demand, growth in exports was robust. Exports of goods grew by 22.3 percent, the fastest since the third quarter of 2010. And exports of services grew steadily by 14.3 percent in the first quarter of the year.
On the supply side, agriculture made a great comeback with 4.9- percent growth after several quarters of decline. The services sector continued to be the main driver of growth, growing 6.8 percent. The 6.1-percent growth in industry also remained respectable with the boost provided by manufacturing, although tempered by the slowdown in construction and utilities, and decline in mining and quarrying production.
Pernia said the domestic economy is poised to maintain its growth momentum with the recovery of external trade and private sector’s steadfast optimism.
“The government has also been busy laying down a strong foundation for sustainable and equitable growth with an ambitious infrastructure program. This is among the many other reforms and programs contained in the Philippine Development Plan 2017-2022,” Pernia added.
Pernia also stressed the need to ensure that government spending for both consumption and investment remains within the fiscal program, which is critical to sustain the growth momentum.
“With the steady unfolding of the Build Build Build program in the coming months, we expect 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 said.
Pernia said a constant concern are market volatility from continuing U.S. interest rate normalization, geopolitical tensions in various regions, and the possible rise of protectionist sentiments especially in Western countries.
“We also have to remain cautious and stand ready to take measures to counter the potential effects of El Niño. This may include continuous production support, timely importation, and the distribution of seeds,” he said.
Finance Secretary Carlos Dominguez III said the GDP expansion in the year’s first three months illustrates that growth remains steady and could gain momentum for the rest of the year.
He said the momentum will partly be the result of the administration’s ‘Dutertenomics’ strategy to stimulate economic activity and achieve financial inclusion for all Filipinos in the long haul via an aggressive expenditure program on infrastructure, human capital formation and social protection
“We hope our legislators could help Malacañang sustain the growth momentum this year and onwards by acting soon enough on the first package of the CTRP (Comprehensive Tax Reform Program) that is now pending in the Congress, as it will help guarantee a steady revenue stream for the Duterte administration’s high—and inclusive—growth agenda,” said Dominguez.
The House of Representatives is set to start plenary deliberations next week on the substitute bill covering CTRP’s first package, to which the chamber’s Committee on Ways and Means gave its final approval last May 15, with the House leadership eyeing its passage, and referral to the Senate, before Congress goes on its sine die adjournment in June.
“Solid macroeconomic fundamentals plus strong domestic consumption and investment sentiment have enabled, and will continue to enable, our country to sustain its pace as one of the world’s fastest-growing economies on the Duterte watch despite the ever-changing global market conditions,” he added.
Analysts said government data showed growth for the first quarter of the year was strong and balanced, the research unit of Australia and New Zealand (ANZ) Banking Group Ltd. said.