Philippine economy grows 6.7% in 2017

MANILA, Philippines (Updated 3:07 p.m.) — The Philippine economy expanded within the government’s target in 2017, keeping the country’s position as one of the fastest growing economies in Asia despite a slowdown in the last three months of the year, the country’s statistics agency reported Tuesday.

The country’s gross domestic product — or the value of all finished goods and services produced in the country — grew 6.6 percent in the fourth quarter, decelerating from the upwardly revised 7 percent in the previous three months.

The October-December GDP settled below market estimate of 6.7 percent, but nonetheless matched the growth rate recorded in the same period in 2016.

The fourth quarter figure placed the country’s full-year GDP performance to 6.7 percent, slower than 2016’s 6.9 percent but still within the government’s 6.5-7.5 percent growth target range in 2017.

“To me this is a good performance given the fact that it’s already normal for post-election years to witness a decline in economic growth,” Socioeconomic Planning Secretary Ernesto Pernia told a press conference.

“Our decline is really very moderate,” he added.

Farm output, which accounts for about a tenth of the Philippines’ GDP, grew 4 percent in 2017, a turnaround from previous year’s 1.4 percent decline.

Pernia said public spending, which grew 14.3 percent, was the main growth driver in the fourth quarter of 2017.

On the other hand, the “major contributing factor” to the economic decline was the miscellaneous services sector, which includes the business process outsourcing industry, he said.

“We can take this as an indication that the current market profile of the BPO sector is ripe to move into higher value-added services,” Pernia said.

The industry sector expanded at a slower pace to 7.2 percent in 2017 from 2016’s 8.4 percent. Meanwhile, services sector grew 6.7 percent last year, a reversal from the 7.4 percent growth rate clocked a year ago.

“With these developments, we move forward in 2018 with even stronger determination to accelerate growth,” Pernia remarked.

Upward trajectory

Moving forward, the country’s socioeconomic planning chief said the government is hoping to “shift to the trajectory upwards some more” this year and in the medium term.

In the first quarter of 2018, Pernia said he expects domestic demand to pick up on account of improvements in household consumption as a result of the enactment of the Duterte administration’s first tax reform package, and employment opportunities to be generated by the state’s ambitious infrastructure program.

He added that government consumption will likely “remain afloat” buoyed by the programmed increase in social spending, as well as by higher compensation for government workers in line with the Salary Standardization Law.

On December 19, President Rodrigo Duterte signed into law the Tax Reform for Acceleration and Inclusion (TRAIN) Act, which aims to generate revenue to fund a multi-billion dollar infrastructure program key to the government's economic agenda.

Under the TRAIN law, personal income tax rates will be adjusted to shift the burden off lower-income segments toward the “ultra-rich” while projected revenues to be foregone will be offset by higher excise levies on petroleum and automobiles, among others.

The Duterte administration has set an P8.44-trillion infrastructure spending plan until 2022 to spur gross domestic product growth to 7-8 percent starting this year from a targeted 6.5-7.5 percent in 2017.

The Philippines has a 7.0-8.0 percent growth target in 2018.

For his part, Bangko Sentral ng Pilipinas Governor Nestor Espenilla said the sanguine economic growth in the fourth quarter gives the central bank “ample” room to meet its inflation target of 2-4 percent.

“The strong GDP result in Q4, and in 2017 overall, confirm the underlying strength of the economy that rests on increasingly balanced foundation,” Espenilla said.

“This gives BSP ample policy space to stay focused on meeting its inflation target and pursuing financial sector reforms,” he added.