July 26, 2017, 10:49 am
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Q1 GDP growth weakest in a year

The economy grew at its slowest pace in more than a year in the first quarter on weaker government spending, but strong exports and domestic consumption suggest the Philippines remains poised to raise rates this year.

It was the slowest economic expansion since  President Duterte took office nearly a year ago, sending Manila’s equities down more than 1 percent and the peso to a one-week low.

Gross domestic product grew 6.4 percent in January-March from a year earlier, below forecasts for 6.8 to 7 percent growth and the slowest since the last quarter of 2015.

The Philippine Statistics Authority revised growth in October-December 2015 to 6.3 percent from 6.7 percent.

But the Philippines remains one of the fastest growing economies in Asia with robust consumption, which fuelled last year’s growth, continuing to bolster economic activity as exports pick up.

Economic Planning Secretary Ernesto Pernia said the Philippines’ growth outpaced those of Vietnam and Indonesia which grew by only 5.1 percent, and Thailand by only 3.3 percent. 

“We are only second to China’s growth of 6.9 percent while India’s number hasn’t come out yet,” said  Pernia.

“Moving forward, the domestic economy is poised to maintain its growth momentum with the recovery of external trade and the private sector’s steadfast optimism,” he said, adding growth was broadly in line with the 6.5-7.5 percent  target for this year.

Pernia said the slowdown could be explained by the absence of election spending, which boosted growth a year earlier.

Exports grew 20.3 percent in the first quarter from a year earlier and domestic consumption rose 5.7 percent. But government consumption growth eased to 0.2 percent from 4.5 percent in the previous quarter and 11.8 percent a year ago in the absence of election spending.

The agriculture sector, which comprises 9.1 percent of the economy, grew 4.9 percent, a reversal from a 4.3 percent contraction a year ago. 

Industry sector, comprising 34.2 percent of the economy, slowed down to 6.1 percent compared to a 9.3 percent growth in 2016. 

Services, which account for  56.7 percent of the total economy, meanwhile slowed down to 6.8 percent compared to a 7.5 percent recorded a year ago. 

Net primary income from the rest of the world (NPI) slowed down to 3.9 percent from 9.4 percent last year, resulting to the gross national income (GNI) to grow 5.9 percent compared to 7.3 percent the previous year.

Private consumption as measured by household expenditure grew 5.7 percent, slower still compared to the 7.1 percent recorded a year ago. Government consumption grew 0.2 percent, an insignificant fraction of the 11.8 percent growth in 2016, which is credited to the “delays in the implementation and procurement of various government programs.”

“The changing of the guards of the government and reorientation of programs really take 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,” said Pernia. 

To sustain the economy’s growth momentum and ensure its effects are more broadly felt, Duterte has promised to spend up to $180 billion over six years to build and modernize railways, airports, seaports and roads.

The stimulus would help offset the impact of protectionist US policies on remittances from overseas Filipinos and on American investment in business process outsourcing to the Philippines, a vital sector for the economy.

 Strong exports and consumer spending, however, should put the central bank on course to raise interest rates this year, economists said.

“With robust growth and rising inflation, the space for the central bank to maintain its policy stance is closing,” said ANZ economist Eugenia Victorino who expects a 50-basis-point hike in rates this year.

“Given the government’s aggressive fiscal plan this year, it remains to be seen if spending may accelerate going forward, which will definitely be a big boost to GDP growth momentum,” said Gundy Cahyadi, economist at DBS Bank. Cahyadi expects full-year growth to come in at 6.4 percent.

The economy grew a seasonally adjusted 1.1 percent from the previous three months, also less than the 1.5 percent forecast in a Reuters poll and the slowest in eight quarters.

James Lago, head of research at PCCI Securities, Inc. said the slow growth for the period is to be expected in the backdrop of a strong growth the economy posted the year prior.

“The reality is like that. The first quarter  corporate earnings reports already gave indication. The first quarter figures just validated it. Specially last year the growth rates are coming in a way above historical average, this year will be more of normalization,” said Lago.  (R. Castro, Reuters)
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