Economic growth slows to 6% in Q2
Secretary Ernesto Pernia
ECONOMIC growth fell below expectations to just 6 percent in the second quarter of 2018, the slowest in three years, increasing the likelihood of the Duterte government missing its full-year growth target.
Socioeconomic Planning Secretary Ernesto Pernia said the latest growth number was “less than what we had hoped for,” paling in comparison with the 6.6 percent growth in the same period last year and the first quarter of 2018.
With GDP growth for the first six months of the year at just 6.3 percent, the “Philippine economy would have to expand by at least 7.7 percent in the second semester to attain the low-end of the 7.0 to 8.0 percent [growth target]for 2018,” he said.
The Duterte government’s top economist blamed the closure of the world-famous Boracay resort island and the ban on open-pit mining for slower economic growth for the April to June 2018 period.
Pernia however said the second-quarter growth figure still “puts the Philippines as one of the best-performing economies in Asia behind Vietnam (6.8 percent) and China (6.7 percent).”
“To be fair and put things in proper context, the slowdown is partly due to policy decisions undertaken that are expected to promote sustainable and resilient development. We are referring to the temporary closure of Boracay Island from April to October 2018, which partly made a dent on the economy with growth in exports of services slowing to 9.6 percent in the second quarter from 16.4 percent in first quarter,” Pernia said in a news conference in Pasig City.
“We are also referring to regulations in the mining sector — the closure of several mining pits and the excise tax on non-metallic and metallic minerals — so that mining and quarrying sector showed a lackluster performance.
It is down by 10.9 percent. Moreover, the stricter enforcement of regulations on aquaculture producers at Laguna Lake resulted in the drop of freshwater fish catch,” he added.
Pernia said the implementation of the Tax Reform for Acceleration and Inclusion or Train Law, which had made a slight impact on inflation, did not dampen GDP growth.
“No, no, no Train is not in any way connected to GDP performance,” he emphasized.
Malacañang said the latest GDP figure was not a cause for alarm.
“I don’t think it is alarming because 6 percent is still high. People, do not forget, we may not have met the target but 6 percent is very high,” Palace spokesman Harry Roque Jr. told reporters.
“Of course, we’re also saddened by the fact that we failed to meet targets. But targets are targets. We will do everything to meet them. If we don’t we’ll find out why and we’ll try to achieve the further targets for the rest of the year,” he added.
Dismal farm output
In a statement, the Philippine Statistics Authority said manufacturing, trade and construction were the main drivers of growth in the second quarter.
Services recorded the fastest growth at 6.6 percent, followed by industry at 6.3 percent, and agriculture with a mere 0.2 percent.
“Today’s data on agriculture output strengthens the case for the government, particularly the Department of Agriculture, to urgently conduct a comprehensive review and reform of policies and programs that restrict access to land and the use of land, access to technology and extension services, access to finance, and access to markets. This should also include an assessment of the market environment, including the possible presence of cartels and incidence of smuggling. The Department of Trade and Industry and the Philippine Competition Commission can help us in this endeavor,” Pernia said.
‘Disappointment’
In a research note, Nomura Global Markets Research said second-quarter growth was the slowest since the second quarter of 2015, “although this is still the 13th straight quarter of at least 6% growth.”
“The disappointment came across the agriculture, mining, manufacturing and services sectors. The construction sector was a bright spot, posting an acceleration to double-digit growth in line with faster public sector expenditure disbursements on infrastructure and capital outlays,” it said.
Nomura said there were downside risks to its full-year 2018 GDP growth forecast of 6.9 percent.
“Still, we expect an acceleration of growth in [the second half], led by investment spending as the government makes more progress in implementing infrastructure projects, which should crowd-in private sector spending.”
Capital Economics, ANZ and IHS Markit said the 6 percent growth in second quarter posed a challenge to the government and central bank.
Capital Economics said it expected the slowdown to continue over the second half of 2018 because tighter monetary policy and higher inflation would weigh on consumer spending.
The central bank raised its key interest rate by 50 basis points to 4 percent amid record inflation.
“The economy is likely to expand at a decent pace over the next year, although growth will fall short of the government’s target of 7-8 percent,” Capital Economics said.
“Further ahead, a key risk to growth is the deteriorating political climate amid signs that President Duterte’s leadership style and growing autocratic tendencies is putting off investors.”
Higher rates could be a drag
IHS Markit said higher interest rates could slow down growth. “With the BSP having commenced a monetary policy tightening cycle, the impact of higher policy rates will also be a moderate drag on GDP growth over coming quarters,” it said.
Further rises in world oil prices could push inflation higher and force more BSP rate hikes during in the second half and in 2019, it warned.
“Another downside risk to the near-term economic outlook is from the escalating US-China trade war, which could hit the East Asian manufacturing supply chain to China and have some negative impact on Philippines manufacturing exports,” said Rajiv Biswas, Asia-Pacific chief economist of IHS Markit.
ANZ described the second-quarter growth as “lower than our and market expectations.”
The latest GDP data prompted ANZ to revise its growth projection to 6.6 percent from 6.8 percent.
“[D]omestic demand remains a concern as it has been accompanied by a widening trade deficit and accelerating inflation. We believe that monetary tightening is essential to curb these imbalances,” ANZ said.
WITH A REPORT FROM RALPH U. VILLANUEVA
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