SECRETARY ARSENIO M. BALISACAN
Economic Planning Secretary and
2014 Q3 NATIONAL INCOME ACCOUNTS PRESS CONFERENCE
27 November 2014
PSA-NSCB Operations Room, Makati City
Members of the media, our colleagues in the government, ladies and gentlemen, good morning.
As reported earlier, the Philippine economy grew by 5.3 percent in the third quarter of 2014. This is much slower than the 7.0 percent expansion we observed in the third quarter of 2013. Growth in production was mainly contributed by manufacturing (1.6 ppts); trade (1.1 ppts); and real estate, renting & business activities (0.7 ppts), and construction (0.7 ppts). However, deceleration in sub-sectors such as financial intermediation and the contractions in agriculture and public administration tempered the pace of growth. On the demand side, the growth was fuelled by net exports (2.1 ppts), private construction (1.1 ppts), and food and non-alcoholic beverages (1.0 ppts). However, the contraction in government consumption and public construction slowed down total demand.
The third quarter economic performance shows a mixed picture of the private sector treading a more stable upward trajectory, government adjusting to new spending protocols, and then, the lingering negative impact of typhoon Yolanda and other calamities.
The manufacturing sector contributed the most to the growth observed in the third quarter of 2014. This was despite the deceleration in its Gross Value Added from 8.9 percent in 2013 to 7.2 in 2014. The deceleration, however, can be traced to base effects particularly in the chemical and chemical products subsector which grew by triple digit (133.5%) last year, and then slightly declined this year. Among the major contributors to growth are food manufactures, beverage industries, radio, television and communication equipment and apparatus, petroleum and other fuel products, and publishing and printing. Demand for these manufactured goods come from both domestic and external sources. Export of consumer electronics and communication/radar, for instance, grew by 33.4 and 49.3 percent, respectively. The increase in fuel manufacturing, meanwhile, goes in tandem with the continued growth in passenger vehicle demand.
Real estate, renting and business activities (RERBA) grew by 6.2 percent, a marked slowdown from its growth of 11.6 percent the year before. The slowdown was due to the real estate (26.0% to 6.2%), while growth in renting and other business activities remained robust at 11.5 percent. This is reflected, as well, in Bangko Sentral’s survey on consumer sentiment which showed optimism for real estate buying conditions for the quarter.
Contributing to the slowdown in RERBA is the marginal increase in the Gross Value Added in dwelling ownership. This particular subsector used to increase at the same rate as the creation of new families, at about 2.3 to 2.4 percent. Beginning the first quarter of this year, the growth rate has averaged only 0.5 percent. The first quarter result could be due to the damage wrought by typhoon Yolanda, while the figures for the next two quarters meant that the damaged properties have not yet been replaced.
Related to the strong growth in renting and other business activities is the acceleration of private construction, growing by 15.7 percent in the third quarter this year, compared to only 1.6 percent last year. Private sector developers have remained bullish due to strong Business Process Management sector demand and traditional office takers. With the recent announcement that BPO could reach US$ 48 bn by 2020, market outlook is expected to remain positive in the medium term.
On the other hand, public construction contracted from a double digit growth of 19.1 percent to -6.2 percent. Most of the delays were due to lags in the submission of documentary requirements by the concerned agencies. Although this year, the GAA is now considered a release document, for certain big ticket items, the GAA stipulates certain conditions prior to budget release. Mostly, the requirement is for agencies to situate its proposed projects within the context of already existing facilities. DepEd’s Basic Educational Facilities Program had to wait for the completion of calamity-resilient building designs. In addition, they had to relocate some schools in the Yolanda-affected areas either because its original location is deemed unsafe or because the student population in the previous location has declined significantly. The detailed plans for the reconstruction of the Yolanda-affected areas had to be prepared by the concerned local government units and national agencies, then consolidated by the OPARR, before funds could be released.
The financial intermediation slowed down, (12.1% to 7.7%) attributed to the moderation in banking institutions (17.3% to 7.2%). But then again, this could be traced to base effects. Last year turned out to be a very profitable year for the banking sector, but these were actually non-recurring gains from securities trading. In the insurance sector, the increasing incidences of natural calamities were eating into profits due to huge claims.
By far the biggest decline is observed in the Agriculture, Fishery and Forestry sector, by -2.7 percent. Crop production, which accounts for 44.5 percent of the total output of the sector, contracted (-5.0%). The losses mostly came from palay (-10.0%), corn (-5.8%), coconut including copra (-5.8%), and the aggregated “other crops” (-3.5%). Palay production was adversely affected by typhoons “Glenda and “Luis”, onset of “habagat”. Regarding coconut, farms in the Visayas are yet to recover from Typhoon “Yolanda” in addition to the scale insect infestation. There were modest gains in hog production (1.6%), but poultry production decreased (-3.7%) during the quarter. This was due to the damage brought about by Typhoon “Glenda” on major poultry houses in CALABARZON. Currently, these poultry houses as well as those in the Yolanda-damaged areas are still in the process of building their layer inventories. The fisheries sector was also severely affected by typhoon Glenda.
On the demand side, the biggest contributor to growth was Net Exports which grew by 125.7 percent. Supported by the strengthening of the global manufacturing industry, the country recorded a trade surplus in the third quarter of 2014 amounting to PhP 6.9 bn, a recovery from the PhP 26.9 bn deficit a year ago.
The growth in total exports was mainly driven by merchandise exports (9.8%) largely supported by the growth in semiconductors, ignition wiring sets, and articles of apparel and clothing. Moreover, high growths were also recorded in medical/industrial instrumentation; basketworks; mango, fresh or dried; and communication/radar. Exports of services also accelerated (9.9% from 6.4%), mainly coming from BPO receipts.
Total imports grew slower, from a 17.3 percent expansion in the same quarter a year ago, it grew only by 5.8 percent. Given that this is usually the time when business builds its inventory in time for the Christmas season, and given the recovery in external demand, the slowdown in imports could be because of the port congestion. Merchandise imports grew by a mere 3.4 percent from 16.7 percent primarily due to the contraction in electronic imports particularly semiconductors (-17.2%); other raw materials, machinery and mechanical appliances.
Fixed capital grew faster in the third quarter of 2014, at 10.1 percent vs. 9.5 percent in the same period last year. This was despite the contraction in public construction (-6.2%), which was already discussed earlier. In contrast, expansions were observed in private construction which increased by 15.7 percent in Q3 2014 from 1.6 percent in the same period a year ago. Meanwhile, intellectual property products also rose from 13.1 percent in the same period last year to 35.1 percent in Q3 2014 while durable equipment remained strong with 8.1 percent growth. These developments indicate that the business sentiment in the country remains upbeat and that the private sector is continuing their business expansions in the country.
Given this quarter’s performance, GDP growth in the first three quarters is estimated at 5.8 percent. Admittedly, even hitting the low end of the target growth rate for the year would pose a big challenge. We need to grow by at least 8.2 percent in the fourth quarter and we in the DBCC will brainstorm intensively on how we can come as close to this figure as possible.
Going forward, do we see a brighter prospect? The short answer is “yes.” We expect the private sector to maintain a robust performance; government will have adjusted to the new protocols and we see this in the most recent, though preliminary data coming from DBM. And, as I address you today, the reconstruction assistance in the Yolanda-affected areas is already gaining traction.
We are also taking stock of the lessons here: agencies will have to be adequately prepared and capacitated to comply with new protocols. And more importantly, we need to improve our resilience against disasters – through better preparedness, through adaptation, through adequate social protection and through having a faster response mechanism.
Thank you at mabuhay tayong lahat.