3rd fastest in Asia despite 2017 slowdown; 7-8% trajectory seen for 2018

THE Philippine economy grew 6.7 percent in full-year 2017 to keep its rank among the fastest in Asia despite a slowdown forecast earlier by analysts polled by The Manila Times.

Although slower than the 6.9 percent expansion recorded in 2016, the Philippine rate of economic growth last year puts it next only to China and Vietnam.

“This stable performance brings our full-year growth in 2017 to 6.7 percent—a strong finish that keeps our position as one of the fastest-growing economies in Asia, after China’s 6.9 and Vietnam’s 6.8 percent,” Socioeconomic Planning Secretary Ernesto Pernia said.

“To me, this is a good performance, given the fact that it is already normal for post-election years to witness a decline in economic growth,” he told reporters in a press briefing that followed the release of official government data on 2017 gross domestic product (GDP).

Fact vs forecast

The Philippine Statistics Authority (PSA) reported figures on Tuesday showing GDP rose 6.7 in 2017, compared with an increase of 6.9 percent in 2016.

The full-year official figure settled within the government target range of 6.5 percent to 7.5 percent for 2017.

In The Manila Times poll published Monday, analysts’ estimates ranged from 6.6 percent to 6.8 percent, with five of the 10 respondents giving an exact 6.7 percent increase forecast that turned out to be accurate.

In the fourth quarter of 2017 alone, GDP grew by 6.6 percent, according to PSA data, moderating from 7 percent in the third quarter but matching the expansion recorded in the final quarter of 2016.

During the last quarter, growth in public spending reached 14.3 percent, up from the year-earlier rise of 4.5 percent.

Strong demand, infra spending

Domestic demand growth strengthened to 7.3 percent in the fourth quarter from 6.4 percent in the preceding quarter.

Public construction spending increased by 25.1 percent, offsetting a 2.9 percent contraction in private construction.

On the supply side, Pernia said the country recorded improvements in utilities and mining, while growth in services was supported by transport and communications, trade, and public administration, defense, and social security.

Lastly, agriculture recorded 2.4 percent growth in the fourth quarter, having recovered from a 1.3 percent decline in the corresponding period last year.

Hope for 7-8% upward trajectory

Pernia said the government will move forward in 2018 with an even stronger determination to push for accelerated growth to a target range of 7 percent to 8 percent.

“For 2016 and 2017, economic growth has been strong and steady. Our hope for 2018 and in the medium term is to shift the trajectory upward some more,” he said.

“The Build, Build, Build program, of course, will continue its momentum in providing more opportunities to our country such as investments, job creation, connectivity, and dependable delivery of public services,” he added.

To ensure that the country’s capacity for growth is sufficient, the government needs to make sure that the labor force has the requisite skills and competencies to meet rising demand, particularly for higher level skills, Pernia said.

“This is why we need to open our education sector and ramp up our skills training programs toward greater learning opportunities for our current and future workforce. This will help in upgrading the technical know-how and the skills needed to counter the plateauing of the IT-BPM [information technology-business process management]sector’s development and in capacitating our workers for the demands of the Build, Build, Build program,” he stressed.

Train’s push

For the next quarter, the government expects domestic demand to pick up on the back of an improvement in household consumption following the recently approved tax reform package, which Pernia said, will result in a higher take-home pay for 99 percent of Filipino taxpayers.

Household consumption is also seen benefiting from expanded employment opportunities from the Build, Build, Build program.

Meanwhile, government consumption is seen remaining afloat, buoyed by the programmed increase in social spending, consistent with the implementation of the tax reform program. Government consumption is also set to expand, Pernia said, following higher salaries of government personnel in line with the third tranche of the Salary Standardization Law.

Pernia added that the government looks forward to seeing much-needed reforms getting implemented, such as the Revised Foreign Investment Negative List, or the 11th RFINL.

The list will help the country attract more investors by easing restrictions on foreign investments, especially in public utilities, telecommunications and higher level skills development, he said.

“We are keen on attracting foreign direct investment flows that will make the Philippines more competitive. We must also make sure that we do not miss the second flow of FDIs [foreign direct investments]for the Asean [Association of Southeast Asian Nations] region, having already missed its first wave in the 1980s,” he said.

Pernia also pointed out a need to ensure that the benefits of the increase in take-home pay resulting from the tax reform, the Salary Standardization Law (SSL), and that economic growth will not be negated by inflationary pressures.

“We hope to accelerate the cash assistance to the bottom 50 percent of families in order to stem the possible, though short-term, inflationary impact of the Train [Tax Reform for Acceleration and Inclusion],” Pernia added.

The NEDA chief stressed that the government should also be aggressive in pursuing reforms in the sector like the lifting of the quantitative restrictions on rice imports.

“Certainly, the Philippine economy remains strong and there is still more room to grow.

The government remains committed to making this growth inclusive,” he concluded.

Space for monetary policy

Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr. said the strong GDP results for the fourth quarter and in 2017 overall confirm the underlying strength of the economy that rests on an increasingly balanced foundation.

“This gives BSP ample policy space to stay focused on meeting its inflation target and pursuing ambitious financial sector reforms” he told reporters.

Meanwhile, Finance Secretary Carlos Dominguez 3rd said he expects the economy to expand faster now that the government’s programs to modernize public infrastructure and sustain the growth momentum have started falling into place.

The additional revenue take from the Train, plus new money from the Official Development Assistance deals and the successful float of $2 billion-worth of 10-year US dollar-denominated bonds would ensure a steady revenue flow for the government’s aggressive spending on public infrastructure, which, in turn, would spell greater economic activity.

Moreover, he said, sizable personal income tax cuts under the Train law would boost consumer spending and help spur greater economic activity.

“These developments, which attest to President [Rodrigo] Duterte’s unwavering political resolve to effect real positive change and the corollary strong investor confidence in the domestic economy on his watch, would guarantee enough fiscal space to let Government continue pursuing an expansion policy leading to nonstop high—and inclusive—growth,” Dominguez said.

“As I said last year, there will be a more exciting growth narrative for the Philippines this 2018, more so now that all of the government’s plans to keep the country among the world’s fastest-growing economies have started falling into place,” he added.