November 25, 2017 | MANILA, PHILIPPINES

Growth dismays, worst since 2015

THE ECONOMY grew by a softer-than-expected 6.4% in the January to March period, its worst performance in over a year, as personal consumption and government spending weakened without the boost from last year’s elections.

Preliminary data from the Philippine Statistics Authority (PSA) showed that growth in economic output -- as measured by gross domestic product (GDP) -- slowed from the 6.6% posted in the preceding quarter and from 6.9% logged during the same period last year. The first quarter GDP print matches the 6.4% logged in the third quarter of 2015, according to PSA data.

The GDP reading was below the 6.8% median estimate in a BusinessWorld poll of economists. Separate surveys by Reuters and Bloomberg had earlier put the median estimate at 6.8% and 6.7%, respectively.

With the result falling below even the most pessimistic forecast, Philippine stocks lost 0.88% to end yesterday’s session at 7,757.69, while the peso depreciated by four-and-a-half centavos to close at P49.805 against the dollar.

The government had earlier pencilled in a 7% growth estimate for the first three months, a forecast underpinned by encouraging trade and factory output data as well as a rebound in farm production.

“This can be explained by the base effects: that is, growth last year was high due to election spending, as you would already know by now, the impact of which has already dissipated,” Socioeconomic Planning Secretary Ernesto M. Pernia told a press briefing on Thursday.

“The changing of the guard of the government and reorientation of programs really take time to settle, and this slowed government spending for the quarter,” he added.

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The GDP data was also by far the poorest reading since President Rodrigo R. Duterte emerged victorious in last year’s presidential elections. His administration has pledged to spend as much as P8.4 trillion in infrastructure until 2022 to further boost GDP growth, but government expenditures -- which make up almost a tenth of economic activity -- eased to 0.2% in the first quarter from 4.5% in the quarter before.

“It turned out that base effects were more of a factor with the dissipation of the election spending impact including lesser government expenditures for the first quarter,” said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (UnionBank).

Growth was hit on the spending side, with household consumption and investments -- not just public spending -- all slowing down.

Personal consumption, which accounted for nearly 60% of the economy, rose at a slower 5.7% clip in the January to March period from 6.2% in the fourth quarter and from 7.1% a year ago.

Investments rose 7.9%, moderating from year-ago’s 31.5% and past quarter’s 14.7%.

“We were already expecting a GDP growth moderation and we attribute this to the following factors: high base effect for government expenditures since first quarter of last year was an election period, resulting in an anaemic government spending growth; higher inflation, which dampens household spending; and less positive business confidence, which eases capital formation growth,” Security Bank Corp. economist Angelo B. Taningco said.

“A somewhat disappointing number out of 1Q, especially on the consumption end, with private consumption growth below 6% and the mere 0.2% print in government consumption,” said DBS economist Gundy Cahyadi.

“Inventory build-up has slowed down. While some excess capacity exists in the economy, a normalization in investments has been forthcoming.”

Mr. Cahyadi added that investment growth had been averaging nearly 20% in the last two years, faster than it had been the ten years prior.

Nomura said yesterday in a research note: “The main source of disappointment for us was private consumption which eased to 5.7% from 6.2% despite resilience of remittances and stronger agriculture output.”

“Consistent with slower investment spending, construction activity also eased along with the services sector, led by transport, storage and communications and real estate,” it added.

On the production side, the services sector expanded by 6.8%. Transport, storage and communications, and real estate respectively posted growth of 4.9% and 6.9%.

Growth in the industry sector, which made up a third of the economy, eased to a two-year low of 6.1%. Its manufacturing subgroup picked up pace to 7.5% from 7% in the previous quarter.

Construction slowed to 8.2% from the low double digits in the past five quarters. Output from mining and quarrying declined 20% in the first quarter, coinciding with the time that then Department of Environment and Natural Resources Secretary Regina Paz “Gina” L. Lopez ordered the closure of half of the country’s mines.

Agriculture, hunting, forestry and fishing rebounded, logging a 4.9% expansion in the first quarter from the previous quarter’s 1.3% fall.

“The Philippines remains one of the strongest performers among the major emerging economies in Asia,” Mr. Pernia said.

“For the first quarter, we overtook Vietnam and Indonesia which grew by only 5.1%, and Thailand by only 3.3%. We are only second to China’s growth of 6.9% while India’s number hasn’t come out yet.”

In a separate statement, Finance Secretary Carlos G. Dominguez III said growth was still on-track to hit the government target range of 6.5-7.5% for this year.

“GDP expansion in the year’s first three months illustrates that growth remains steady and could gain momentum for the rest of the year,” said Mr. Dominguez adding this was supported by the administration’s ‘Dutertenomics’ strategy, whose objectives include stimulating economic activity through an “aggressive expenditure program on infrastructure, human capital formation and social protection”.

“Given the government’s aggressive fiscal plan this year, it remains to be seen if spending may accelerate going forward, which will be definitely a big boost to GDP growth momentum,” said DBS’ Mr. Cahyadi. -- Jochebed B. Gonzales