Outpaces China, 3 other SEA countries
The economy grew 7.8 percent in the first quarter, up from 6.5 percent in the same period last year, on the back of strong growth in manufacturing and construction, the government announced Thursday.
The rise in gross domestic product was the highest among East and Southeast Asian countries, said Arsenio M. Balisacan, director general of the National Economic and Development Authority.
“The number speaks for itself. This exceeded market forecasts, including my own,” said Balisacan, noting that the 7.8 percent growth surpassed China at 7.7 percent, Indonesia at 6.0 percent, Thailand at 5.3 percent and Vietnam at 4.9 percent.
Finance Secretary Cesar Purisima said the results showed the Philippines could expect sustained growth.
“The Philippines now looks upon an open sky of possibility, as we continue to free ourselves from the limiting mentalities that have held us back in the past,” he said.
Balisacan said increased consumer and government spending contributed to the second highest GDP growth since 2010.
The government is sticking to its growth target of 6 percent to 7 percent this year, even as weakening exports are likely to persist, Balisacan said.
Exports, which make up the equivalent of about 30 percent of the economy, fell in two out of three months through March, data showed.
Despite this decline, all sectors contributed to the first-quarter growth, with services growing 7 percent, industry 10.9 percent and agriculture 3.3 percent, Balisacan said.
Manufacturing contributed a high 9.7 percent growth, despite an 8.4 percent contraction in goods exported, indicating higher domestic demand, the NEDA chief said.
“It indicates to us that we may now be moving along a new growth trajectory,” Balisacan said.
He said the economy was fueled by positive sentiment flooding the market and consumer optimism, bolstered by a 32.5 percent increase in public construction.
“The private sector is also heavily investing in infrastructure,” Balisacan said.
“The contribution to growth of private construction is at least three times that of public construction,” he added.
Government consumption grew by 13.2 percent, driven by its support for social programs such as the Pantawid Pamilyang Pilipino Program (4Ps) and safe and potable water supply for water-less barangays nationwide.
Balisacan said the government hopes to create more jobs to address unemployment, one of the most pressing issues haunting the Aquino administration.
“The challenge is to create more sustainable jobs to reduce poverty,” Balisacan said.
Asian Development Bank country director for the Philippines, agreed that employment is crucial in sustaining the economic growth.
“The current focus on job creation by crowding in private investment will help make economic growth more inclusive,” Jain said.
HSBC economist Trinh Nguyen described the growth as “impressive” but cautioned that government spending had been vital to the growth, and this might not be sustainable amid continued low government revenues.
She also pointed out that despite consistent fast growth in the Philippines, the unemployment problem had not improved.
The country’s unemployment rate rose to 7.1 in January, from 6.8 percent at the end of 2012, according to official data.
Economists say one of the worst traits of the Philippine economy is a huge rich-poor divide, with a remarkably few number of families and companies swallowing up most of the benefits of growth.
Ernesto Pernia, professor from the UP School of Economics, said the effects of the GDP growth would be felt gradually by the poor – “maybe in three years.”
In the Palace, presidential deputy spokesperson Abigail Valte acknowledged more needs to be done to make the impact of the growth felt by ordinary people.
“More than economic growth, the Aquino administration is focused on fostering inclusive growth,” she said.
Valte also cited the four-fold increase in the budget of the government’s dole program for the poor, which has reached 3.9 million Filipino households.
She said the government has always aimed for growth where “nobody will be left behind.”
The peso rose from an 11-month low after the data showed Philippine resilience to a cooling in Asian economies that has prompted policy makers in India, Vietnam and Thailand to cut interest rates this month.
“It’s showing domestic demand in the Philippines is very resilient in the face of slowing growth regionally,” said Trinh Nguyen, Hong Kong-based economist at HSBC Holdings Plc. “Government spending surprised on the upside, raising optimism that investment in the country is picking up.”
The peso rose 0.3 percent to 42.3 per dollar. The Philippine Stock Exchange Index fell 2.3 percent as of 11:35 a.m. in Manila. It surged to a record earlier this month.
Despite the impressive growth figures, the Philippines faces many challenges. Among them, the global slowdown, excessive capital inflows and natural disasters, an annual occurrence in the Southeast Asian country where poor infrastructure and rice fields suffer damage from typhoons and floods.
“Disasters can negate the gains and even push back development. Moreover, the global economy remains fragile, negatively affecting our trade performance,” Balisacan told reporters.
“Due to the attractive investment opportunities, we are also at risk of receiving too much capital inflows as advanced economies implement quantitative easing. The challenge is to channel these inflows into productive investments,” he said.
Domestic consumption remained the main driver of growth, fueled by remittances from about 10 million overseas Filipino workers. Last year, they sent back $24 billion, which accounts for 10 percent of the country’s economic output. It makes the Philippines the third largest recipient of remittances in the world, after India and China and on par with Mexico.
There has been little progress in job creation. The Asian Development Bank says that nearly half of those working within the country are classified as vulnerable — unpaid family workers and the self-employed, mostly in the informal sector. Economists have urged the government to diversify the economy by revamping the educational system and providing employment opportunities in manufacturing.
The proliferation of call centers has made outsourcing one of the fastest growing industries with revenue of $11 billion in 2011. But for the large pool of unskilled labor, those jobs are out of reach. Poverty rates remain high, with about a third of the population living on $2 a day.
Balisacan said that the government understood that for growth to be inclusive, the poor must be linked to the growth industries.
“The faster this can be done, the better it will be for the greater number of our people,” he said. With Joyce Pangco Pañares, AP, AFP, Bloomberg