Philippine growth slows to 3.2% in 3rd quarter

A big drop in exports, bad weather and anemic government spending sent the Philippine economy performing “much worse” than the government had expected in the third quarter, making it unlikely that the country will achieve its growth target for the full year.

Growth in gross domestic product (GDP), the value of goods produced and services rendered in the country, decelerated for the third straight quarter to 3.2 percent from 7.3 percent last year, officials reported on Monday.

The National Economic and Development Authority (Neda) had forecast a 3.8-percent to 4.8-percent growth, while private economists had expected an average of a 4-percent growth in the third quarter.

Other countries in Asia posted relatively higher growth rates—6.5 percent for Indonesia, 6.1 percent for Vietnam, 6.1 percent for Singapore, 5.8 percent for Malaysia, and 3.5 percent for Thailand, according to Socioeconomic Planning Secretary Cayetano W. Paderanga Jr.

“The typhoons that caused losses and damage in the agriculture sector, the global economic slowdown amid uncertainties in Europe and weakness of the US economy, and contraction in the construction sector, amid stricter project reviews for public construction projects, contributed to the modest performance of the economy,” he said in a statement.

Paderanga, also Neda director general, said achieving the country’s revised growth target for 2011 would be “difficult.”

In the wake of the report on weak growth, the main Philippine Stock Exchange index closed 33.71 points, or 0.79-percent lower, to finish at 4,227.88. The main index is thus now barely higher than the end-2010 level of around 4,200.

Benjamin E. Diokno of the University of the Philippines’ School of Economics said the third-quarter GDP expansion was “much worse than expected.”

“The Philippines is now looking at a full-year GDP growth of 3.8 percent, much lower than the revised official forecast (of 4.5 percent) and certainly much lower than the aspirational GDP growth rate of between 7 and 8 percent,” Diokno said in a text message.

Cid L. Terosa of the University of Asia and the Pacific said he was surprised by the low GDP growth. “I forecast at least 4 percent. I believe the export performance, sluggish world economy and the devastating typhoons have weakened the economy,” he said.

Decline in fishing

Romulo A. Virola, secretary general of the National Statistical Coordination Board (NSCB), said “the  so-called death spiral of debt that hounded our trading partners, the uninvigorating, albeit already expanded government spending and the decline in fishing due to unfavorable weather and the high cost of fuel contributed to the relatively lethargic growth.”

Virola said fishing had contracted in five out of the past six quarters.

“As almost always, the service sector saved the domestic economy from posting an even lower growth. With the downwardly revised second-quarter GDP estimate, this puts the growth for the first nine months of 2011 at 3.6 percent, quite a distance even from the lower end of the whole year target of 4.5 percent,” he said in a statement.

Delayed implementation

On the demand side, the NSCB said consumer spending bolstered growth but construction continued to suffer from the much-delayed implementation of the Public-Private Partnership (PPP) program while the export of goods took a big hit due to the global crisis.

President Aquino’s PPP program had been billed as the cornerstone of his economic agenda, under which he had promised to bid out big-ticket infrastructure projects to private investors in partnership with the government.

The spending spree was designed to generate millions of jobs and induce local economic growth, but more than a year later, none of his planned major projects have started.

Exports contract

Exports posted a double-digit decline for the first time since the second quarter of 2009, according to Virola.

Exports contracted 13.1 percent as foreign demand, particularly for electronic products, fell.

Singapore and Taiwan last week highlighted concerns about the weakness in Western economies and fading global demand. Singapore said it expected a contraction in the current quarter, while Taiwan trimmed its 2011 and 2012 growth forecasts.

For the Philippines to reach even a 4.5-percent GDP growth for the full year, the country must generate a 6.9-percent growth in the fourth quarter, according to NSCB calculations. The Philippines posted a 7.1-percent GDP growth in the fourth quarter of 2010.

Favorable prospects

Notwithstanding the third quarter’s moderate growth, there are indications of more favorable prospects for the fourth quarter of 2011, Paderanga said.

“These include the following: anticipated higher demand on account of the Yuletide and harvest seasons; a more stable macroeconomy; a broadly steady consumer sentiment; the continued inflows of remittances from Filipinos overseas; the reported higher level of business confidence relative to the previous quarter; and the full implementation of the P72-billion disbursement acceleration program of the government,” he said.

At the same time, government is working with the trade sector to expand exports in new and existing markets.

The government also expects greater diversification in the services sector, particularly in business process outsourcing, to bring in more business for the country.

“Looking ahead, growth should pick up in fourth quarter on the back of resilient domestic demand and increased government spending, but net exports will remain a drag on the economy. Given a worsening global outlook, we remain cautious on Philippine growth outlook for next year,” said Trinh Nguyen, an economist at British banking giant HSBC.

Finance Undersecretary Gil S. Beltran also said that growth in the third quarter was worse than expected because the effects of the government’s “accelerated spending” efforts would be felt fully only in the fourth quarter.

The assistant Neda director general, Ruperto P. Majuca, said in a presentation that as of Nov. 8, the Department of Budget and Management had released P43.8 billion, or 60.2 percent, of the government’s P72.1-billion disbursement acceleration program.

Rates steady

The Bangko Sentral ng Pilipinas (BSP) said it would not cut policy rates despite the anemic performance of the economy in the third quarter.

Diwa Guinigundo, the deputy BSP governor, said existing interest rates were still low and supportive of growth of the economy.

The fact that the economy still did not expand as expected meant that the other growth factors were the ones missing, he said. With reports from Ronnel W. Domingo, Michelle V. Remo, Doris C. Dumlao, Reuters and AFP

Originally posted: 1:36 pm | Monday, November 28th, 2011