ERNESTO M. PERNIA
Socioeconomic Planning Secretary
Press Conference on the Performance of the Philippine Economy
For Second Quarter of 2018
August 9, 2018 | 10:00 a.m.
Astoria Plaza, Ortigas Center, Pasig City
Colleagues from the Philippine Statistics Authority,
Coworkers in government,
Friends from the media,
Ladies and gentlemen, good morning.
As reported by the Philippine Statistics Authority, our economy expanded by 6.0 percent in the second quarter of 2018. That is the real growth rate. Putting this in a bigger perspective, nominal GDP growth is 9.6 percent. Although this growth still puts the Philippines as one of the best-performing economies in Asia, just after Vietnam at 6.8 percent growth and China at 6.7 percent growth, and ahead of Indonesia’s 5.3 percent, this growth rate is less than what we had hoped for.
Given the 6.0 percent GDP growth outturn, as well as the downward revision of the first quarter GDP, our GDP growth for the first six months of the year is at 6.3 percent. This implies that the Philippine economy would have to expand by at least 7.7 percent in the second semester to attain the low-end of the 7.0 to 8.0 percent for 2018.
To be fair and put things in proper context, the slowdown is partly due to policy decisions undertaken that are expected to promote sustainable and resilient development. We are referring to the temporary closure of Boracay Island from April to October 2018, which partly made a dent on the economy with growth in exports of services slowing to 9.6 percent in the second quarter from 16.4% in first quarter. We are also referring to regulations in the mining sector – the closure of several mining pits and the excise tax on non-metallic and metallic minerals – so that mining and quarrying sector showed a lackluster performance. It is down by 10.9 percent. Moreover, the stricter enforcement of regulations on aquaculture producers at Laguna Lake resulted in the drop of freshwater fish catch.
But, I emphasize, all measures should ensure sustainable and long-run growth for the economy. These policy decisions were prudent and judicious.
Industry growth is slower at 6.3 percent as manufacturing softened on the back of strict regulations of controlled chemical and chemical products, coupled with the high rates charged by shipping companies for transporting chemicals.
Still on the supply side — electricity, gas and water supply moderated to 3.6 percent which may be associated with the weaker MERALCO sales and household spending for utilities.
We are also gravely concerned about the almost stagnant output of the agriculture sector and this supports our premise that the main reason behind the high inflation is the gross deficiency in the domestic production of food, which was not augmented by imported goods especially rice.
Palay, corn, sugarcane and mango harvests for the quarter were dismal. Coconut including copra, livestock and poultry production all reported weak output.
Today’s data on agriculture output strengthens the case for the government, particularly the Department of Agriculture, to urgently conduct a comprehensive review and reform of policies and programs that restrict access to land and the use of land, access to technology and extension services, access to finance, and access to markets.
This should also include an assessment of the market environment, including the possible presence of cartels and incidence of smuggling. The Department of Trade and Industry and the Philippine Competition Commission can help us in this endeavor.
Crop diversification should also be implemented. In particular, the government should encourage farmers to shift to high-value crops.
Farmers will be supported too as we strongly urge the tariffication of rice imports.
Rice tariffication is a crucial measure to address food supply issues and their consequent impact on inflation. It will reduce the policy uncertainty in rice trade, and hopefully, encourage more productive investments in the sector.
While headline inflation has risen in the past six months, the month-on-month numbers showed a downward trajectory so that inflation should moderate by the end of the year in line with the forecast of the BSP.
And despite the price pressures, domestic demand remained buoyant at 10.1 percent – driven by household consumption and investments.
This is the silver lining.
In the case of household consumption, higher disposable incomes resulting from the recently passed Tax Reform Package 1 and improved labor market conditions are seen to help sustain growth.
Government consumption recorded a slight deceleration at 11.9 percent from the 13.6 percent in the previous quarter. This is still higher than the 7.6 percent recorded in the second quarter of 2017. The results were only because of lower disbursements for personnel services, maintenance and operating expenses, as well as subsidies despite the higher allocation to the Local Government Units.
However, government spending is expected to continue to grow as it works toward the development of human capital through various social programs, including cash transfers, the National Health Insurance Program, and utilization of the Calamity Fund for the reconstruction/rehabilitation/repair programs in calamity-stricken areas.
The timely implementation of the Build, Build, Build program bodes well with the construction industry and is seen to boost not only public construction but private builders as well.
In the services sector, the immediate facilitation of the possible entry of a third player in the telecommunications industry will enhance the efficiency of communications, and support the growth of small business, particularly retail trade. Further, the resumption of tourism activities in Boracay Island by October gives us good reason to be bullish about prospects for tourism and other service sectors in the fourth quarter.
The immediate approval of the 11th Regular Foreign Investment Negative List, or FINL, should also be prioritized to reduce foreign investment restrictions. Together with the proper implementation of the Ease of Doing Business Act, this will surely encourage more investments from both foreign and domestic sources.
The government remains committed to making growth inclusive. We hope to have the continued support of the Department of Agriculture and the Department of Trade and Industry – and my fellow economic managers from the Department of Finance, Budget Department and the Bangko Sentral ng Pilipinas – and our friends in the media, in our effort to translate this growth into what we have been referring to as the matatag, maginhawa at panatag na buhay para sa lahat.
Thank you very much and mabuhay tayong lahat!