The Philippines is a star in a weak global economy: Its economy grew 6.9 percent in the first quarter, making it one of Asia’s best performers, even outpacing China for the first time in 27 years.
In the same period last year, the economy expanded 5.2 percent.
The growth, however, did not help the Aquino administration in the May 9 elections, as its presidential candidate lost by a wide margin, an indication that growth was not trickling down to the poor, among other reasons.
The Philippines outpaced the growth posted by major Asian economies, such as China’s 6.7 percent, Vietnam’s 5.5 percent, Indonesia’s 4.9 percent and Malaysia’s 4.2 percent, according to the National Economic and Development Authority (Neda).
Sustained robust domestic demand coupled with ramped up government spending for public goods and services ahead of the elections pushed economic growth to its fastest pace in over a year.
Services grew 7.9 percent and industry recorded its highest growth in five consecutive quarters at 8.7 percent. Investments also boosted the economy, with fixed capital posting 25.5 percent growth.
Agriculture contracts
The growth came despite a relatively weak exports and a farm sector ravaged by the worst El Niño in 28 years. Agriculture contracted 4.4 percent, the fourth consecutive quarter of decline.
With election spending expected to boost second-quarter growth to over 7 percent, Socioeconomic Planning Secretary Emmanuel F. Esguerra on Thursday said the economy was “on track” to reach at least the lower end of this year’s gross domestic product (GDP) growth target of 6.8 to 7.8 percent.
It puts the economic expansion during outgoing President Aquino’s six-year term at 6.2 percent, the highest since 1978.
“We are pleased to be turning over a strong and stable economy to the next administration,” he said at a news conference, referring to presumptive President-elect Rodrigo Duterte, who takes office on June 30.
Philippine Statistics Authority data showed that the first-quarter growth figure matched the 6.9 percent posted in the fourth quarter of 2014.
Impact of poll spending
Neda has yet to determine the actual impact of poll-related spending on the first-quarter economic output, but Esguerra said previous elections showed a 0.3 to 0.4-percentage point contribution to the GDP during the election season.
Other economic managers welcomed the news of the strong economic expansion.
Bangko Sentral ng Pilipinas Gov. Amando M. Tetangco Jr. said the first-quarter GDP growth confirmed that policy settings were appropriate right now.
“We will, however, continue to be mindful, among others, of weather-related developments. While El Niño seems to be winding down, it could still have residual effects on the crop cycle. In addition, we may see the onset of La Niña by midyear,” Tetangco said in a text message to reporters.
Budget Secretary Florencio B. Abad said he remained optimistic that the economy will continue to expand this year.
“The country has made unprecedented growth in the past five years and we primarily owe this to the principles of good governance—upholding transparency, accountability and openness, especially in the management of public funds,” he said.
Finance Secretary Cesar V. Purisima, for his part, said the next administration would inherit a rapidly growing, vibrant Philippines cushioned by robust foundations built over six years.
Much better place
Purisima said the Aquino administration was leaving the Philippines in a much better place than when it first found it.
“No longer the sick man of Asia, the Philippines emerges more confident and more optimistic than ever, demanding to be governed by even higher standards of governance than before,” he said.
Esguerra said that while strong economic growth and investment inflows could be sustained despite a change in administration by midyear, reforms should be sustained and plans fleshed out.
“What will happen in the second half will depend on how investors will react to the policies that the incoming administration will be putting in place,” said Esguerra, who is also director general of Neda.
Eight-point agenda
The Neda chief welcomed the Duterte administration’s eight-point economic agenda, under which the incoming leadership plans to accelerate infrastructure spending, address land administration and management, attract more foreign direct investment flows, expand and improve the conditional cash transfer program, shore up government revenue collection, make tax administration more progressive, modernize the agriculture sector, as well as strengthen the basic education system.
“It’s comforting that based on what have been said so far, the business sector largely accepted the agenda. But it’s still in very general terms,” Esguerra said.
Neda, as part of the transition committee to ensure smooth transfer of power from the Aquino to the Duterte administrations, will turn over to the incoming leadership policy recommendations, including pending “important” legislation that should be passed to ensure that the gains made thus far in terms of economic reform could not be reversed.
Part of the legislative agenda are reforms to further reduce the cost of doing business, bills aimed at closing the infrastructure gap, enforcement of the recently enacted competition law, rationalization of investors’ fiscal perks alongside comprehensive tax reform, and removal of the quantitative restoration or quota on rice imports.
Risks
Moving forward, Esguerra noted risks to economic growth for the rest of the year.
“In particular, the agriculture and fishery sectors will continue to reel from the lingering impact of El Niño though the transition to a normal weather condition is already happening. We should also start preparing for the La Niña, which now has a 75-percent probability of occurrence,” said the Neda chief.
Agriculture employs 27 percent of the Philippine labor force. Farmers also comprise a large chunk of the 26 percent of Filipinos who live on $1.30 a day or less.
Esguerra called for added state spending to diversify crops, boost community defenses against disasters that also include typhoons and floods, and social protection, including crop insurance.
He said strong domestic demand would push growth in the near term, offsetting the weak global environment. With reports from AP and AFP