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Q1 growth falls short of forecast

The National Economic and Development Authority (NEDA) reported yesterday gross domestic product (GDP) expanded 6.4 percent in the first quarter – lower than the market forecast  of between 6.8 to seven percent – largely due to the absence of election-related spending and slower government spending. File

MANILA, Philippines - The Philippines remained one of the fastest-growing economies in Asia at the start of the year, but the pace of growth fell below expectations.

The National Economic and Development Authority (NEDA) reported yesterday gross domestic product (GDP) expanded 6.4 percent in the first quarter – lower than the market forecast  of between 6.8 to seven percent – largely due to the absence of election-related spending and slower government spending.

GDP growth reached 6.9 percent in the first quarter and 6.6 in the fourth quarter, both last year.

Despite the slower growth during the period, the Philippines remains among the strongest performers among major emerging economies in Asia, said Socioeconomic Planning Secretary and NEDA director general Ernesto Pernia.

The country overtook Vietnam and Indonesia, which both grew 5.1 percent, and Thailand which rose 3.3 percent. The country’s GDP growth was second only to China’s 6.9 percent expansion during the period.

Pernia said while first quarter growth missed the government’s 6.5 to 7.5 percent growth forecast this year, there is currently no need to revise the outlook.

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“It is lower than expected, and for this we were somewhat downcast because we were expecting something like around the midpoint of the 6.5-7.5 percent growth range. But this can be explained by the base effects; that is, growth last year was high due to election spending, as you would already know by now, the impact of which has already dissipated,” he said.

He said this follows the pattern of slower growth in the first three months of the year following an election year.

In a statement, Finance Secretary Carlos Dominguez III said the Philippines is still on track toward meeting its full-year target growth of 6.5 percent to 7.5 percent.

“GDP expansion in the year’s first three months illustrates that growth remains steady and could gain momentum for the rest of the year,” Dominguez said.

The finance chief said this momentum would be driven by the administration’s strategy to stimulate economic activity and reduce poverty through its “aggressive” spending program on infrastructure, human capital and social protection.

He also urged the Congress to approve the pending Comprehensive Tax Reform Program, which is also seen to sustain growth.

“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,” Dominguez added.

On the supply side, growth in the services and industry sectors were slower in the first quarter at 6.8 percent and 6.1 percent, respectively. Pernia attributed this to the slowdown in construction and utilities as well as the decline in mining and quarrying production.

The agriculture sector, meanwhile, outperformed as it grew 4.9 percent, reversing several quarters of contraction.

Not to be overlooked, however, is the impact of slower government spending in the first quarter which Pernia attributed to the change in administration and reorientation of 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,” said Pernia.

Government spending for infrastructure slowed down due to lower equity and capital transfers to local government units, Department of Budget and Management (DBM) data showed.

In a report, DBM said the national government’s expenditures for infrastructure in the first quarter fell 2.5 percent to P142.1 billion from P145.8 billion recorded a year ago.

As government agencies traverse the learning curve, some improvements in the absorptive capacity may be seen by the second half of the year addressing underspending, Pernia said.

He said he expects the economy to maintain its growth momentum with the recovery of external trade and higher business optimism.

“The government has also been busy laying down a strong foundation for sustainable and equitable growth with an ambitious infrastructure program….It is important to ensure that government spending for both consumption and spending remains within the fiscal program, which is critical to sustain the growth momentum,” Pernia said.

The government aims to spend more than P8 trillion in the next six years in vital infrastructure projects and usher in the so-called golden age of infrastructure.

On the external front, the domestic economy faces risks arising from geopolitical tensions in various regions, market volatility from rising interest rates in the US, and intensifying protectionist sentiments in the West.

The rise in inflation must also be contained at a manageable level to keep consumption robust, said Pernia. Among key measures, he said, is allowing the timely importation of rice which can significantly drive up inflation in short supply.

Household consumption grew slower at 5.7 percent compared to 7.1 percent in the first quarter of 2016.

“We also need to ensure that inflation will remain modest for the next three quarters to keep demand strong. Our inflation in the first quarter at 3.2 percent was pretty high compared with first quarter of last year,” he said.– With Mary Grace Padin

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