Economy grows by slower 3.4% in Q2

MANILA, Philippines -  The Philippine economy grew by 3.4 percent in the second quarter of the year, a much slower pace compared to the 8.9 percent recorded in the same period last year, because of under spending by the government, sluggish foreign trade and the yet-to-be-fulfilled promises of the public-private partnership (PPP) program, the National Statistical Coordination Board (NSCB) reported yesterday.

The 3.4 percent gross domestic product (GDP) growth fell below the forecast for the period of 4.5 percent to 5.5 percent. The latest growth figure brought the average growth in the first half of the year to four percent.

GDP is the sum of all goods and services produced in an economy in a given period.

In a press conference yesterday, NSCB Secretary General Romulo Virola said that to achieve the lower end of the government’s aspirational target of seven percent to eight percent for the year, the economy must grow by at least 9.9 percent in the second half of the year.

“On the demand side, the growth came mainly from consumer spending as fixed capital formation particularly construction has not really felt the promise of the Public and Private Partnership program, while external trade has been lackluster at best,” Virola said.

Low government spending

The central bank and some economists also cited low government spending for the slowdown.

“Moderation in demand indicators likely gnawed into the extent of support to the headline, with sluggish public spending likely to be the key drag as assurances of front-loading in disbursements failed to take off in the period,” said Radhika Rao, economist at Forecast Pte, Singapore.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo also noted, “We are quite surprised that growth decelerated further in the second quarter. This must be driven by the prolonged strong downpull of weak global economy.”

“This is a challenge to increasing investment and domestic absorptive capacity. This could be supported by the ample liquidity in the system and low cost of money. Public spending also needs to further expand.”

Virola said that the European debt crisis and the fragile recovery of major trading partners dampened the country’s economic growth.

Nevertheless, he said that the agriculture sector recorded a robust rebound while the manufacturing and services sectors remained resilient.

On a seasonally adjusted basis, GDP grew by 0.6 percent while gross national income (GNI) grew by a slower pace of 0.4 percent in the second quarter of 2011.

By sector, the NSCB said that the agriculture, hunting, forestry and fishery sectors rebounded with a 2.2 percent growth in the second quarter from 1.8 percent in the first quarter of the year.

The NSCB attributed the better agriculture growth to the rebound in sugarcane, corn and palay.

Similarly, the services sector posted a 2.4 percent growth for the second quarter of the year from 1.3 percent in the previous quarter.

On the other hand, the industry sector posted a slower growth of three percent from 3.1 percent in the previous quarter, government data also showed.

With projected population reaching 95.6 million, per capita GDP grew by 1.5 percent, Virola also said.

 Despite the slower-than-projected growth in the second quarter of the year, Socioeconomic Planning Secretary Cayetano Paderanga, Jr. said that the economy still fared better compared to some of its neighbors.

“In comparison with the country’s Asian neighbors, this GDP growth is faster than that of Thailand’s 2.6 percent and Singapore’s 0.9 percent but slower than China’s 9.5 percent, Indonesia’s 6.5 percent, Vietnam’s 5.7 percent and Malaysia’s 4 percent,” Paderanga said.

BSP rates seen steady

Meanwhile, economists expect BSP to keep its key interest rates steady in its next policy review on Sept. 8 and potentially, the whole year, due to slow economic growth.

“The data adds to the already strong likelihood that the central bank will leave policy settings unchanged for the rest of the year. IFR expects no change,” said IFR Asia-Pacific chief economist George Worthington.

“Overall data bolsters BSP’s intent to keep the benchmark rates steady,” Forecast Pte’s Rao added.

The BSP raised interest rates at policy reviews in March and May, and then raised bank reserve requirements at reviews in June and July as its focus shifted to managing liquidity.

BSP Assistant Governor Cyd Amador has said the scope for raising interest rates has narrowed, with the US Federal Reserve committed to keep interest rates near zero for at least two more years to support the world’s largest economy.

Amador also said last week authorities were mindful of the impact of future monetary policy on growth, which some analysts said was a signal that the policy rate may be kept steady at a two-year high of 4.5 percent in the near term.

Aquino urged to spend more

Administration and opposition lawmakers prodded President Aquino yesterday to embark on a massive pump priming program to arrest the continued decline in the country’s growth.

Aurora Rep. Juan Edgardo Angara said the slowdown was “because government had yet to embark on large spending, which it is beginning to do now.” “It (decline in GDP) could also be due to lower consumption and the world economy’s decline in same period,” Angara said.

But more than growth the government should be looking at other economic indices, which measure poverty and income inequality reduction, he said.

“Growth figures do not indicate if we are becoming more meritocratic, it may just indicate rich getting richer while poorer classes struggle. Also if we are measuring vs. 2010 figures then election spending that year would also be a factor,” Angara said.

Zambales Rep. Milagros Magsaysay also attributed the continued decline of the GDP to underspending “and lack of clear direction from the administration.”

“How low do they (administration) want our economy to sink before they go on implementing projects and reassuring investors that we in the Philippines have word of honor and honor contracts?” Magsaysay said, referring to big ticket projects cancelled by Aquino.

“We’re nearing the end of the year yet the much ballyhooed PPP or the Public-Private Partnership has yet to take off, no takers yet since the administration launched it last year,” she said.

She said foreign investors are “either confused or now allergic to the Philippines because of cancellation of their contracts.” “Worse, while the government is withholding spending, private companies are laying off workers,” she said.

 Magsaysay said the growth trend should be compared to the GDP of the country when Aquino assumed office, which was at nearly nine percent.

“So if they (administration) decide to do something about this decline, the country would have to recover first to the level where growth was highest, which was just before he assumed office instead of the country building on gains or growing higher and faster,” she said.

House Senior Deputy Minority Leader and Quezon Rep. Danilo Suarez said Malacañang should realize that about 30 percent of the country’s economic activity is related to government.

 Akbayan party-list Rep. Walden Bello said the slowdown was caused obviously caused by a combination of internal and external factors “but most likely predominantly external owing to continuing stagnation in US, Europe and Japan.”

He said Aquino’s credibility would not be affected as the country has no control over global economic trends.

“People will understand but they will also expect him to do something to counter adverse external trends,” Bello said.

 Alliance of Concerned Teachers party-list Rep. Antonio Tinio warned the figures could indicate the economy is in a “recession given that there have been dramatic declines in GDP growth for the last two quarters, from 8.9 percent at the end of 2010 to the current 3.4 percent.”

“Despite President Aquino’s hype during the SONA that the economy is on the right path, the data showed his administration has not addressed the genuine development of domestic industry and agriculture, including land reform, which are the keys to long-term, equitable growth,” Tinio said. - with Paolo Romero