Press Conference on the Performance of the Philippine Economy for Second Quarter of 2013
29 August 2013, 10:00 am
NSCB Operations Room

Good morning. 

As you have seen, the Philippine economy as measured by the gross domestic product or GDP grew by 7.5 percent in the second quarter of 2013 compared to the same quarter last year. This is higher than the analysts’ median forecast of 7.2 percent. But more than that, we wish to highlight that this economic growth is very significant for a number of reasons. 

First, this is the fourth consecutive quarter that the GDP has been expanding above 7 percent. We have been experiencing growth of above 6 percent since the first quarter of 2012. We also note that the second-quarter expansion is above the 6-7 percent target set by the Development Budget Coordination Committee or DBCC for this year. While the first quarter growth was slightly higher at 7.7 percent, this 7.5 percent second quarter growth is well within the target range of 7- to 8-percent GDP growth as originally outlined in the Philippine Development Plan or PDP for 2011 to 2016. This only confirms that the Philippine economy is now on a higher growth trajectory. 

Second, we remain the fastest growing economy among emerging economies in the ASEAN region. The 7.5-percent growth, which is the same as that of China, surpasses the growth rates of our Asian neighbors. Within the ASEAN region, Indonesia grew by 5.8 percent; Viet Nam by 5.0 percent; Malaysia by 4.3 percent; Singapore by 3.8 percent; and Thailand by 2.8 percent. Our growth rate is significantly higher than that of Hong Kong with 3.3 percent, Japan with 2.6 percent, Chinese Taipei with 2.5 percent, and South Korea by 2.3 percent. 

Third, and probably the most important one, the composition of our growth shows signs of an economy that is in the process of rebalancing, moving from being largely consumption-driven to becoming investment-led and industrialized, with the ability to provide higher quality jobs for Filipinos. For the past three quarters, capital formation has been growing more rapidly than household consumption and the growth of industry has so far outpaced that of the services sector. Notable are the double-digit growth rates in fixed capital and the manufacturing subsector in the last quarter. 

On the demand side, we see that household and government spending account for the bulk of GDP. Nevertheless, we see investments growing and taking the lead in the medium term, given its double-digit growth for the past two quarters. Note that we are able to grow at a fast pace despite the contraction in exports. This internal dynamism indicates greater consumer and business confidence in the domestic economy, as we have continued to keep our macroeconomic fundamentals in check. Thus, while other economies that were growing at a fast rate are now decelerating due to global slowdown, the Philippine economy has shown an ability to withstand external shocks. 

On the supply side, both the service and industry sectors continue to grow fast, with the industry sector growing by more than 10 percent in the last two quarters. The latter sector was strongly supported by the manufacturing subsector, which grew by 10.3 percent in the second quarter. Within manufacturing, food processing, furniture and household appliances like radio and TV, basic metals, and machinery posted significant growth, indicating greater use of skilled labor. In the past, growth was driven largely by the service sector that had only been able to provide mostly low-paying, unstable, intermittent, and low-productivity jobs predominantly in the informal sector. With the rebound of the industry sector, we are optimistic that more stable, productive and remunerative jobs, even for the less-skilled, will be generated, which will address persistent unemployment and underemployment and will lead to better quality of life. Meanwhile, in the service sector, we see a 9.5-percent growth in real estate, renting and business activities, which indicates continued expansion of business process outsourcing. 

However—and this is something we need to address— the agriculture sector slightly contracted for the first time since the first quarter of 2012, even as some subsectors within agriculture actually grew. Output from corn and palay production declined by 25.9 and 1.8 percent, respectively, in the second quarter of 2013. This may be due to the intense heat experienced in Ilocos and Cagayan Valley regions and farmers harvesting their crops in advance in anticipation of the drought. Nonetheless, the strong performance of various subsectors has tempered the contraction in the agriculture sector. For example, the fisheries subsector, which comprises almost one-fifth of the sector, grew by 3.3 percent, while poultry and livestock expanded by 6.0 and 3.9 percent, respectively. Let me also note that the contraction in agriculture confirms our earlier observation in the April 2013 round of the Labor Force Survey, where employment in agriculture-related activities registered a loss of around 624,000 workers from a year ago, compared to about 224,000 and 380,000 additional employment generated in the industry and service sectors, respectively. The seasonality in the agriculture sector poses a challenge to growth and employment, and this is why we will need to diversify agricultural production and to move towards further processing of agricultural products, particularly food. 

Nevertheless, we are pleased that overall, our economic performance in the second quarter of 2013 indicates that we are on track with our targets. Our strategic initiatives as outlined in the PDP continue to be implemented and are bearing fruit. These include having sound macroeconomic fundamentals, a sustainable fiscal position, stable financial system, and favorable external position. Notwithstanding the challenges of implementing public-private partnership projects or PPPs, both the government and private sectors continue to invest heavily in infrastructure, which has been a critical constraint to development. This can be seen in the double-digit growth rates in construction for the past five quarters. In the second quarter of this year alone, public and private construction grew by 31.1 and 9.0 percent, respectively. All our efforts to attract investments and build business and consumer confidence have borne fruit. In the latest ASEAN Business Outlook Survey of the US Chamber of Commerce, the Philippines was cited as exhibiting “dramatic improvement across almost all local and business environment factors,” adding that business leaders of American companies have seen significant progress in recent years. 

With strong macroeconomic fundamentals, our country has the means to manage risks that arise with volatilities, including those of the stock market and Philippine peso. Inflation remains stable; interest rates continue to be low; and our current account is so strong that we can cover 12 months worth of imports. Likewise, the increased diversification of exports as indicated by the decline in the share of electronic products from 70 percent to 50 percent of total exports has made us less susceptible to trade-related shocks. While we are not completely immune to external shocks, our positive actions that have facilitated economic restructuring and rebalancing have given us greater resiliency. 

We remain committed to sustaining this growth and making it more inclusive so that every Filipino benefits from and contributes to development. The latest Labor Force Survey in April 2013 shows that the quality of jobs among the employed is improving. More people have regular wages and salaries, indicating that those employed have more remunerative and stable jobs. Also, the number of full-time employment posted a double-digit growth from a year ago, increasing its share to 64.0 percent in the same period. While unemployment remains a challenge, the strong performances of the investment and industry sectors are positive indications that the Philippines is on its way towards generating more and better-quality jobs. 

There is so much potential that the Philippine economy can realize, with vast opportunities and room for growth ahead of us. We are only at the early stages of our growth momentum, and it is encouraging to know that signs are pointing toward attaining sustained and inclusive growth for all. 

Salamat at mabuhay tayong lahat.