Members of the media, our colleagues in the government, ladies and gentlemen, good morning.
I am pleased to report to you that economic growth accelerated to 6.4 percent in the second quarter of 2014. This higher growth rate, coming from a high base a year ago shows that the economy is back on the higher trajectory of growth registered in 2012 and 2013 and bodes well for economic growth for the rest of 2014. We remain as one of the bright spots in the region, the second fastest growing economy among major Asian countries for the period, tied with Malaysia’s performance and topping other major ASEAN countries such as Indonesia, which has 5.1 percent, and Thailand with 0.3 percent.
On the demand-side, net exports contributed 4.2 percentage points and household consumption contributed 3.6 percentage points. This profile is in line with a more positive global economy, favorable business sentiment, and robust inflows of overseas Filipinos remittances.
On the supply-side of our economy, most sectors demonstrated strong growth, except for the construction sector. Agriculture grew by 3.6 percent, a rebound from 0.2 percent contraction in the second quarter last year. This was due to the big turnaround in major crop harvests. Industry grew by 7.8 percent, partly moderated by the weak performance of the construction industry. Although private construction increased by 12.7 percent during the second quarter compared to last year, public construction reversed last year’s strong growth and recorded a significant reduction in the second quarter. Still, it is notable that the gross value added in manufacturing accelerated to 10.8 percent in this period, buoyed by strong external demand and household final consumption. Meanwhile, the services sector expanded by 6 percent, mainly due to trade, real estate, renting and business activities, and transport, storage & communication. This was in response to the increased demand for business process management and the expansion of economic activities.
On the demand-side, the strong household spending in the second quarter of 2014 reflects the still upbeat consumer sentiment in the country. However, the slowdown in disbursements in Personal Services and Maintenance and Other Operating Expenditures or MOOE led to the nil growth in government consumption.
According to the Department of Budget and Management, the slower spending was partly due to administrative bottlenecks. Some government agencies also needed to revise their work programs to increase service delivery in the Yolanda-affected areas. For instance, the Department of Health had to prioritize deployment of its personnel to render primary health care in the Yolanda-affected areas. The availability of donated supply reduced the need for MOOE even as the service was being delivered.
Meanwhile, the decline in public construction was the result of lower spending in infrastructure and other capital outlays particularly in the months of April and May 2014 as major government agencies posted lower-than-programmed disbursements. We have already identified the reasons for this under-performance. Examples are the delayed submission of new requirements indicated in the GAA, ongoing validation of proposed programs under the Grassroots Participatory Budgeting, and the revision of work programs to respond to the reconstruction needs in the Yolanda-affected areas.
Overall, we see that the country still has a strong likelihood of achieving the full-year growth target of 6.5 to 7.5 percent. Expectations survey show that businesses maintain their positive outlook on the economy. However, we are aware that market players are still looking for more positive signals, in particular the public sector’s key role in infrastructure spending and consumption of nondurables.
We would like to assure you that the identified administrative bottlenecks that contributed to the underperformance of the government sector are being addressed. In fact, disbursements in June increased by almost 45 percent and we are confident that government will catch up on its work program for the year.
While the optimism in the domestic economy remains, we remain vigilant against factors that could temper our growth prospects. Supply-side shocks have pushed headline inflation to the upper bound of the inflation target, prompting the Monetary Board to raise policy rates to temper inflationary pressures. Still, this preemptive action allowed ample room for a favorable policy maneuver that does not necessarily harm growth prospects.
On the supply-side, the agriculture, fishery and forestry sector is seen to maintain its momentum. In particular, livestock and poultry will likely grow due to increasing consumer demand as the holiday season approaches. The industry sector is expected to accelerate in the second half of the year, led by manufacturing and the public construction subsectors. The manufacturing sector also remains upbeat as indicated by its double-digit growth. The sector is expected to gain from the positive outlook for exports and the increasing interest of foreign firms to set up operations in the country.
Growth of the construction industry will be supported by the roll-out of public infrastructure projects, including PPP projects, the reconstruction assistance in the Visayas region, and the demand for more business and residential units. Services will continue to grow primarily in response to higher demand by households, domestic industries, inbound tourists, and the strong external demand for business process management.
Certainly, government underspending in this quarter is a cause for concern. But we assure you that the government is aware of this and is taking the right steps to address bottlenecks in the implementation of critical programs and projects, particularly key infrastructure projects. And we are doing this with a sense of urgency. Proof of this will be demonstrated in the second half when government spending contributes to the economy’s growth while committing to improve our overall competitiveness and the delivery of the needed public goods and services.
Thank you at mabuhay tayong lahat.