Q2 growth slowed to 6.5% on election year base effect, ‘slack’ in private investment

(Updated, 4:43 p.m.) Economic growth slowed to 6.5 percent year-on-year in the second quarter despite a boost from government spending on public goods and services as private sector investments lagged behind, the government reported Thursday.

The gross domestic product (GDP) expansion during the April to June period was lower than the 7.1-percent growth posted in the same period last year, although a bit faster than the 6.4 percent in the first quarter.

Socioeconomic Planning Secretary Ernesto M. Pernia nonetheless pointed out that the Philippines remained among “the best-performing economies in Asia,” as the second-quarter GDP growth surpassed Vietnam’s 6.2 percent and Indonesia’s 5 percent.

“This puts the country as either the second- or third-fastest growing major Asian economy, next only to China whose growth rate is 6.9-percent growth in the second quarter. Malaysia and Thailand have not yet released their data, but we can expect that they will be lower than the performance of the Philippines for this quarter,” said Pernia, who heads state planning agency National Economic and Development Authority.

The second quarter also marked the eighth-straight quarter that GDP growth exceeded 6 percent, Philippine Statistics Authority data showed.

Pernia said that the historically slower expansion in the year following an election year was still evident, although the gap between the growth rates last year and this year was narrower than those after the presidential elections in 2010 and 2004. Election spending boosts economic growth during the first half of an election year.

From growth rates of 6.9 percent and 7.1 percent during the first two quarters of 2016, GDP expansion eased to 6.4 percent and 6.5 percent this year.

In contrast, the 7.2 percent and 7.9 percent in the first and second quarters of 2004 significantly dropped to 5.1 percent and 5.4 percent in 2005, while the 8.4 percent and 8.9 percent enjoyed in the first half of 2010 declined to 4.6 percent and 3.2 percent in 2011.

Also, Pernia noted that in the second quarter, the government stepped up its spending performance while the private sector “slackened.”

To recall, the government blamed the lower-than-expected 6.4-percent growth in the first quarter mainly on slower government spending, higher prices of consumer goods, as well as the dissipated impact of election-related expenditures last year.

In the second quarter, “government consumption expanded by 7.1 percent from a meager 0.1 percent in the first quarter of 2017,” Pernia said, adding that “this shows a marked improvement in the absorptive capacity of our government agencies.”

In contrast, growth in private investment slowed to 8.7 percent from 10.6 percent in the first three months.

“Just think what could happen if both government and private sectors together exerted that extra effort,” Pernia said.

Private investment slowed in the second quarter mainly on moderate private construction during the period, the Neda chief said.

As for the supply side, “industry was at 7.3 percent, supported by the growth of the manufacturing, and mining and quarrying sectors,” Pernia noted.

“Importantly, the agriculture sector continued to recover from El Niño, expanding by 6.3 percent. Meanwhile, the services sector continued to be the main driver of growth despite the slower growth of 6.1 percent relative to last year’s 8.2 percent and the previous quarter’s 6.7 percent,” he added.

Since economic growth averaged 6.5 percent in the first half, Pernia said he was optimistic that the full-year GDP expansion will settle between 6.5 percent and 7 percent.

Earlier, Pernia said they were hopeful to hit the midrange of the 6.5-7.5 percent growth target for 2017, or about 7 percent.

In a statement, Finance Secretary Carlos G. Dominguez III said the sustained strong economic expansion in the second quarter was “solid proof that the year-old administration has been making the right moves at the right time in pursuit of President Duterte’s socioeconomic agenda on high—and inclusive—growth.”

“With the upturn in state spending beginning in the year’s second quarter, President Duterte’s unparalleled investment strategy anchored on the ‘Build, Build, Build’ program has started to pick up steam,” added Dominguez, who heads the Duterte administration’s economic team.

PSA data showed that public construction grew 12 percent in the second quarter.

Under its “Build, Build, Build” program, the Duterte administration plans to usher in a “golden age of infrastructure” by spending a total of up to P9 billion on hard infrastructure until 2022.

“We are optimistic that the accelerated state spending and project implementation would keep the Philippines in the club of Asia’s fastest-growing economies as it sustains the momentum for the government-set expansion rate of 6.5-7.5 percent this year and a higher 7-8 percent in 2018 and onwards,” Dominguez said.

For Bangko Sentral ng Pilipinas  (BSP) Governor Nestor A. Espenilla Jr., the second-quarter GDP growth “confirms our view that the Philippine economic expansion remains robust.”

“The GDP growth is in line with the BSP’s expectations and is consistent with the within-target inflation forecast for this year. The firm economic momentum during the first half of the year alongside favorable business and consumer sentiment should augur well for the expansion of the economy over the near- to medium-term,” Espenilla said.

RELATED STORIES

PH GDP slowed to 6.4% in Q1 of 2017

PH economy grew 7% in Q2