ERNESTO M. PERNIA
Socioeconomic Planning Secretary
Press Conference on the 2016 Q2 Performance of the Philippine Economy
SMX Convention Center Rooms 4 and 5, Agdao, Davao City
18 August 2016, 10:00 AM
Ladies and gentlemen, members of the media, colleagues in government, good morning.
The 7-percent growth in the second quarter of 2016 is an upbeat start for the current administration. The growth is within market expectations given average consensus forecast of 6.1 to 7.2 percent for the second quarter. This strong growth increases the probability of our attaining the revised full-year 2016 DBCC-approved real growth projection of 6 to 7 percent. With the first semester GDP growth of 6.9-percent, the economy will need to grow by at least 5.1 percent in the second half of the year to attain at least the low-end of the growth target. While it is normal to see a slowdown in the second semester during election years (possibly 1.5 to 2.0 ppt lower than the first half), the smooth transition of power and assurance of macroeconomic policy consistency and continuity by the new Administration will likely keep business and consumer confidence strong to meet the full year target.
Among the major Asian emerging economies, the Philippines likely remains the fastest or second fastest-growing economy in the second quarter of 2016, followed by China, which grew by 6.7 percent, Vietnam by 5.6 percent, Indonesia by 5.2 percent, Malaysia by 4.0 percent, and Thailand by 3.5 percent. Data for India are not yet available but some forecasts put it above 7 percent.
The previous administration gave us a strong and stable economy that we can build on further by maintaining the sound macroeconomic, fiscal, and monetary policies already in place. It is also encouraging to note that the growth has been investment-driven.
However, the challenge is to make this growth inclusive so that more people contribute to, and benefit from it. For this, we must improve the competitiveness of our markets and business climate to take advantage of the new surge of investments in the region. Importantly, we must look at the sectors and geographic areas that have been lagging behind and determine how to improve their access to these opportunities.
Let me highlight a few points on the performance of the economy in the second quarter of this year. On the demand side, investments had the highest contribution of 5.7 percentage points to GDP growth. Investments in durable equipment registered an increase of 42.8 percent and private sector investments in construction, which grew to 8.3 percent from 8.1 percent in the first quarter. This growth was driven by stronger business confidence, low interest rates, and strong performance of the construction sector.
Public spending remained strong, driven by the boom in public construction and government consumption, which grew by 27.8 percent and 13.5 percent, respectively. Similarly, private consumption grew stronger in comparison to the previous quarter and year due to the low inflation and interest rates, improved labor market conditions, and steady consumer confidence. Overall, domestic demand growth accelerated to 12.3 percent from 12.0 percent in the first quarter of 2016.
In contrast, external demand weakened further, as exports of goods and services continue to slow down to 6.6 percent, despite the 15.3 percent growth of services exports. Conversely, imports of goods rose to 22.9 percent largely due to increased purchases of capital goods and durables, which indicate an increase of investments from firms. Services imports remained strong at 13.3 percent, significantly higher than the 10.3 percent in the previous quarter.
On the supply side, the acceleration of economic growth was fairly broad-based. The high growth recorded for the first quarter of this year was driven by gains in the industry and services sectors. The industry sector recorded a growth of 6.9 percent, which is higher than the 6.1 percent growth in the previous year, supported by manufacturing, construction, and utilities. Additionally, the services sector recorded an 8.4-percent growth, on the back of faster growth in trade, transport communication, public administration and real estate, renting and business activities.
In contrast to the robust industry and services, the performance of the agriculture sector remains dismal at -2.1 percent due to the lingering effects of El Nino. There is also a developing risk of La Nina that will likely intensify between August and October this year. This highlights the urgency of crafting holistic agriculture development policies that include disaster resiliency. This will benefit workers from the sector, which employs the biggest chunk of our labor force. For La Nina, the Department of Agriculture is already crafting an action plan that identifies the most vulnerable municipalities, focusing on appropriate interventions, preparedness, response, immediate recovery and rehabilitation.
Moving forward, despite the good numbers for the first six months of 2016, there is still a risk of seeing a lower growth rate in the second half of the year. This is a normal occurrence during election years. Consumer sentiment will also likely normalize given the post-election season. What is important is that government continues the smooth transition of power and commits to its agenda of maintaining a consistent macroeconomic policy so that business and consumer confidence will remain strong. Also, we shouldn’t forget that we will need to continue the recovery efforts from the El Nino phenomenon to get the agriculture sector back on its feet.
Over the medium-term, the new administration is aiming still for a steady acceleration of growth towards 7 to 8 percent. This will be supported by sustained and deepened reforms. These include a comprehensive tax reform, sustained investment in infrastructure, easing of restrictions on foreign investments, reduction of cost of doing business, and strengthening of agro-industrial linkages.
While we discuss these economic numbers, it is important to recognize that these should be treated as means to an end. What really matters is that welfare especially of the least among us is improved. This is articulated in the 0-10 Socioeconomic Agenda of President Duterte, especially when he said that we will adopt a human capital approach to development. We are thus concerned about the decline in the output of agriculture and fisheries, for five quarters in succession. Knowing that majority of poor Filipinos rely on this sector for their livelihood, this administration will prioritize agricultural development within the broader framework of rural and regional development.
Even as we address the current issues that affect well-being, we are cognizant of the importance of having a long-term vision for the country. Several dimensions of well-being require more than six years to attain their desired state. Being able to enjoy long and healthy lives will involve addressing health issues from conception to birth, through the first 1,000 days, to adolescence, health issues related to schooling, work, old age, etc. To have a smart and innovative society, we need substantial investments in education from K to 12, higher education including technical and vocational education and training, and possibly, retooling. Building a high trust society will require restoring confidence in public institutions, cultivating trust among people groups and cultures, all the way to instilling national pride and identity. All these require time and the foundations will need to be laid down now.
NEDA has launched early this year the AmBisyon Natin 2040. Centered on people’s aspirations, this aims to answer the clamor for having a long-term perspective in development planning so as to sustain efforts, even with changes in political administrations, to provide a strongly-rooted, comfortable, and secure life for all (matatag, maginhawa at panatag na buhay para sa lahat). NEDA continues to advocate and discuss AmBisyon Natin 2040 with different stakeholders from various sectors of society.
Attaining the AmBisyon is a big challenge, especially for the current administration that is tasked with laying the foundations and, essentially, the springboard needed to reach new heights for the economy and society. As I speak before you today, there is an on-going Social Development Initiatives Summit where government meets with civil society to feel their pulse and identify the critical issues that affect the quality of life of all Filipinos. Before this, we have already met with the business sector last June 20-22. We will continue this partnership because we know that this challenge can be met with nothing less than a whole-of-government coupled with awhole-of-society approach.
Maraming salamat at mabuhay tayong lahat.