The economy expanded 6.2 percent in the third quarter of 2019, the fastest growth recorded so far this year, thus government officials are confident that the lower end of the full-year economic growth target will be met.
The third quarter gross domestic product (GDP) growth rate was faster than the 5.6 percent and 5.5 percent recorded in the first and second quarters of 2019, respectively, as well as compared to the six percent increase in the same period last year.
“After two quarters of deceleration, the growth of the Philippine economy surged to 6.2 percent in the third quarter of 2019. This brings the year-to-date economic growth to 5.8 percent, just slightly below the lower-end of the six to seven percent full-year 2019 growth target of the government set by the DBCC (Development Budget Coordination Committee),” Ernesto Pernia, socioeconomic planning secretary, said in a press conference held in Pasig yesterday.
“This means that the Philippine economy will have to expand by at least 6.7 percent in the last quarter of the year to meet the low-end of the full-year target… for 2019 – a challenge that we are confidently taking on,” he added.
According to Pernia, the 6.7 percent for the fourth quarter is “very achievable.”
“We have seen the economy surging and the momentum will continue,” he noted.
Pernia said compared with other major emerging market economies in the region that have already released their third quarter GDP, the Philippines ranked second behind Vietnam’s 7.3 percent but higher than China’s six percent, India’s expected Q3 growth of below six percent, and Indonesia’s five percent for the period.
He said the stronger growth in public spending in the third quarter contributed significantly to the economy’s performance.
“Usually homestretch spending, like a runner, tends to really exert its utmost effort to reach the end line. So we expect it to be at that vicinity, if not higher, because there’s a lot of pressure on making up,” Pernia said.
“Some may be quick to say that the private sector is a timid participant in our economic growth. Nothing can be farther from the truth. We know that the private sector is the main driver of the economy, with the government providing an enabling policy environment and infrastructure. That is why we need to address infrastructure, logistics and regulatory bottlenecks,” he added.
To recall, the government, through the Departments of Public Works and Highways and of Transportation, implemented a spending catch up plan, after the delayed passage of the 2019 General Appropriations Act (GAA) and the election ban affected the scheduled implementation of new programs and projects for the year.
Thus, Pernia said, the timely passage of the national budget plays a crucial role.
“We welcome the approved validity extension of the 2019 fiscal program, as well as the passage of the 2020 proposed national budget at the House of Representatives. We hope that the passage of both measures will also be timely in the Senate,” he said.
“For the remaining months of the year, the benign inflation outlook, and more upbeat consumer confidence, are expected to stimulate private consumption, especially with the nearing holiday season that has begun,” he added.
Pernia said the government will continuously monitor prevailing prices to ensure that they are reflective of current market situation, and that ample supply of basic commodities should be ensured to further boost domestic consumption.
“Meanwhile, the expansionary monetary policy stance of the government is expected to encourage private investments. The Central Bank has already cut its key policy rates by a cumulative 75 basis points this year. It has also lowered banks’ reserve requirement by a total of 400 bps (basis points) – including the recent 100 bps reduction for thrift banks effective December 2019,” Pernia said.
Over the near term, the government expects the agriculture sector to gain momentum on the back of relatively favorable weather conditions, he said.
He also noted the El Niño-neutral situation is likely to continue and only fewer typhoons are expected to occur until April 2020.
“This is an opportune time to ramp up agricultural production, particularly of high-value crops, not to mention infrastructure construction,” Pernia said.
“We note that the upbeat performance of the agriculture sector, growing by 3.1 percent in the Q3 from 0.8 percent earlier this year, was driven by increased production of corn, coconut and pineapple,” he added.
Pernia also urged the Department of Agriculture and other concerned agencies to swiftly implement the programs and projects under the Rice Competitiveness Enhancement Fund.
“Perhaps, among the priority projects should be the provision of mechanical dryers, particularly in areas where we lack ‘solar drying’ facilities. As the harvest season is ongoing, the government should continue to directly buy palay from local producers affected by the unprecedented decline in farm gate prices to help curb their losses,” Pernia said.
To counter the risk of the spread of African Swine Fever, the government will continue to enforce its biosecurity measures.
“More stringent quarantine checkpoints, provision of disinfection facilities, and intensified anti-smuggling and meat inspection efforts are also needed,” Pernia said.
On the external front, global growth projections of the International Monetary Fund has been cut further to three percent in 2019 and 3.4 percent in 2020.
Pernia said this is due to broad-based slowdown in industrial output, weaker external demand, and dampened investment and business sentiment, exacerbated by increasing trade and geopolitical tensions.
“The trade war in US and China is the biggest risk not just for the Philippines but for the whole global economy,” Pernia said.
“To withstand external shocks and promote growth over the medium term, our country must diversify products and markets through the establishment or improvement of new and existing trade relations with strategic partners,” he added.
Meanwhile, Carlos Dominguez, finance secretary, remains optimistic that the full-year economic expansion could hit the lower band of the official growth forecast.
“The government has managed to hit its spending targets in the latter part of the July-September period, cancelling out the residual effects of the nearly five-month delay in the 2019 GAA that spilled over into the second quarter, and keeping the Philippines among the world’s fastest economies amid the current global economic slump,” Dominguez said.
“Further acceleration of state spending on infrastructure and human capital development served as a fiscal stimulus to the economy. This factor combined with decelerating headline inflation and its subsequent stronger consumer spending in sustaining the growth momentum in the July-September period despite the general international uncertainty induced in large part by the US-China trade friction,” he added.
Dominguez recalled that the 2019 budget delay had forced the government to hold off the implementation of new and ongoing projects. It underspent by roughly P1 billion per day during the first quarter and part of the second quarter, prompting the President’s economic team to eventually draw up a catch-up spending plan for the second semester.
Although it accounts for only 20 percent of GDP, state spending is crucial to growth, Dominguez said, because of its multiplier effects in stimulating the economy and creating jobs.
He foresees an even better pickup in growth momentum in the year’s last quarter and into 2020, as the government meets its catch-up spending program before the yearend.
“What the Philippines has shown is its strength, stability and resilience in the face of adverse conditions such as the global economic slump and the local budget delay,” Dominguez said.
Communications Secretary Martin Andanar said the Duterte Administration is determined and committed in reaching our economic growth target expansion of between 6 percent to 7 percent this year.
“We will continue to foster an environment primed for investments, and reduce the remaining corruption and red tape in government agencies. We will also continue to boost our investment roadshows and promote the Philippines’ favorable economic climate to attract investors both foreign and domestic,” Andanar said.