Economy crawls to 5.6% growth in Q2

MANILA, Philippines - The Philippine economy crawled to a 5.6 percent growth in the second quarter, falling below the government’s target, but remains on track to sustain a high growth trajectory in the next quarters, the country’s chief economic planner said yesterday.

This brought the first semester GDP growth at 5.3 percent, which would need to accelerate in the second half to hit the government’s seven- to eight-percent growth target for 2015.

“Amid ongoing events in the global economy that may affect the country, the quality and the rate of current growth of the Philippine economy give us some assurance that, with greater vigilance and  persistence in pursuing economic and governance reforms, we can withstand the volatile markets overseas, Economic Planning Secretary Arsenio Balisacan said.

The second quarter growth in the gross domestic product (GDP) is an improvement from the five percent pace in the first quarter – a three-year low – but slower compared to the 6.4 percent expansion a year earlier.

“Realistically, it would seem that a six-percent full year GDP growth would be better, since we have to grow an average 6.5 percent just to stay within the six percent growth,” Balisacan said in a press briefing yesterday.

“As one of the countries with a respectable growth compared to other emerging Asian economies, the Philippines remains an attractive market and investment destination. Our economic fundamentals are still strong,” he said.

Jeff Ng, economist at Standard Chartered Bank, said the GDP expanded 1.8 percent quarter-on-quarter in the second quarter compared to a flat growth in the first quarter, but would have to grow between 6.7 percent and 7.7 percent in the second half to achieve the revised growth target of six percent to 6.5 percent.

The country now ranks third among the fastest-growing economies in Asia, behind China and Vietnam, Balisacan noted.

He attributed the poor performance of the economy mainly to the El Nino phenomenon, which continued to choke the expansion of the agricultural sector.

The agriculture sector contracted 5.9 percent in the first six months, a reversal of the  3.4 percent expansion in the same period last year.

The Bangko Sentral ng Pilipinas (BSP) said the faster growth in the second quarter from the first quarter gives authorities more space to keep its current monetary policy settings.

BSP Governor Amando Tetangco Jr. said the higher GDP growth in the second quarter was supported by solid domestic aggregate demand, particularly consumption and capital formation offsetting the decline in exports.

“With the second quarter number and given the current operating environment, we can expect economic performance that is still strong, albeit more modest than the government’s full year target. With this outturn, there may be no need for any immediate recalibration of monetary policy settings,” he said.

He added the BSP would continue to monitor external developments after the global stock market rout last Monday, the impending interest rate hike the US Federal Reserve, the debt crisis in Greece, the global economic slowdown, among others.

“We will also remain watchful of global developments to see how these would affect domestic growth and inflation dynamics,” the BSP chief said.

The BSP’s Monetary Board has kept key policy rates unchanged since September last year. The overnight borrowing rate is pegged at four percent while the overnight lending rate is at six percent.

Meanwhile, local and foreign business groups lauded the local economy’s ability to withstand a global economic meltdown but questioned the government’s ability to accelerate growth moving forward.

The country’s business community was generally satisfied with the 5.6 percent GDP growth in the second quarter which was lower than what the government was expecting.

Makati Business Club chairman Ramon del Rosario said the second quarter GDP growth was realized in spite of weak performance in agriculture and exports and was spurred by welcome increases in public spending.

“It is hoped that continued healthy public spending especially in the context of the coming 2016 elections and stronger holiday spending and OFW remittances will give our economy enough of a boost to offset the effects of El Nino and the economic weakness of major countries to still allow us to achieve a full year growth of 6-6.5 percent,” Del Rosario said.

“GDP growth slightly lower than expected but okay in the light of worldwide economic downturns,” Management Association of the Philippines (MAP) president Francisco Del Rosario Jr. added.

MAP’s Del Rosario, however, said the country should expect further roadblocks ahead especially with the coming elections, China’s economic slowdown, and the capital market’s uncertainties.

“Philippines should continue public-private-partnership (PPP) projects, removing foreign investment restrictions, pass Freedom of Information bill and form Department of  Information and Communications Technology for IT development. Also justice system should be strengthened and corruption cases finalized. Long term development plan should be completed and institutionalized,” he said.

This was supported by Semiconductor and Electronics Industries in the Philippines Inc. president Dan Lachica, who said the local economy may not get better given global economic conditions such as currency devaluation of China and weaker economies of developed nations.

Lachica said exports, one of the main drivers of the economy, may also soften.

Foreign business groups, meanwhile, believe the future is bleak for the local economy if no immediate actions are taken on infrastructure development and public spending.

“The GDP growth is lower than expected and reflects government’s continuing delay in getting infrastructure projects implemented. Another issue is the low level of foreign direct investment due to the restrictive policies.  If growth is to accelerate in the second half, these issues need to be addressed now,” said Henry Schumacher, vice president for external affairs at the European Chamber of Commerce of the Philippines.

For John Forbes, senior adviser at the American Chamber of Commerce of the Philippines, the second quarter Philippine economic growth was not surprising as most economies globally are going down.

“So in that sense, it could have been worse. On the other hand, the government can do more. What has to be done it more government spending. Governments have the power to spend in order to stimulate economy. It’s not that the government in the Philippines has inadequate funds, but there is an unwillingness to have a larger deficit and there is a weakness in the bureaucracy to push more and more projects out,” Forbes said.

“So now, I’m worried about three things. One is weak government spending, second is the El Nino and third is the country getting very bad reputation internationally for port congestion, airport congestion, and traffic congestion which can be fatal to GDP growth,” he added.