DAVAO CITY—Boosted by a robust performance from the industry and services sectors, the economy expanded seven percent in the second quarter, making it the fastest growing in Asia so far, the Philippine Statistics Authority said Thursday.
The second quarter expansion brought growth in the first half of the year to 6.9 percent.
Economic and Planning Secretary Ernesto M. Pernia said the growth in the first six months made it likely that the economy could hit the government’s full-year target of six percent to seven percent, despite the usual slowdown in the second half of an election year.
Pernia also said the smooth transition to a new administration and assurances that there would be consistency and continuity in macroeconomic policies are likely to keep business and consumer confidence strong.
The second quarter growth was faster than economists predicted, giving a boost to President Rodrigo Duterte’s bid to attract more investment and speed up infrastructure spending.
The seven percent growth was higher than the median estimate of 6.6 percent in a Bloomberg survey of 21 economists and beat the first quarter’s 6.8-percent expansion.
Duterte is seeking to relax business restrictions and cut taxes in a bid to attract more foreign investment and build on the economic success of his predecessor. His administration sees a steady acceleration in growth to seven percent to eight percent in the medium term, Socioeconomic Planning Secretary Ernesto Pernia said at a briefing after the GDP release.
The government’s growth outlook is “certainly not outlandish,” Vishnu Varathan, a Singapore-based economist with Mizuho Bank Ltd, said by e-mail. “They do have good demographic dividends to exploit. And if the infrastructure catchup maintains while manufacturing investments follow, this is feasible.”
The Philippines Stock Exchange Index reversed an earlier decline to advance as much as 0.6 percent after the data was released. The index was little changed at 7,948.77 as of 12:52 p.m. in Manila.
Pernia said the economy may slow down for the rest of this year as first-half growth was boosted by a surge in government spending ahead of the May general election. Second-half GDP growth just above five percent would be enough to meet the government’s target of six percent to seven percent expansion this year, Finance Secretary Carlos Dominguez said in an interview on Bloomberg TV.
The services industry, the largest in the economy, expanded 8.4 percent in the second quarter from a year earlier, while industrial output rose 6.9 percent and agriculture fell 2.1 percent. Consumer spending climbed 7.3 percent and government expenditure surged 13.5 percent.
Lifting the investment rate further may be the key challenge for the Philippines, said Timothy Condon, a Singapore-based economist with ING Bank. The rate was at 25 percent of GDP in the first quarter and an increase to 40 percent would be needed to set up the economy for sustained growth of about seven percent, he said.
“I’m very heartened by the acceleration in investment growth since 2015,” Condon said by e-mail. “This is all about the locals seeing it worthwhile to invest in their economy.”
The National Economic and Development Authority said among the major Asian emerging economies, the Philippines likely remains the fastest or second fastest-growing economy in the second quarter of 2016, followed by China, which grew by 6.7 percent, Vietnam by 5.6 percent, Indonesia by 5.2 percent, Malaysia by 4.0 percent, and Thailand by 3.5 percent. Data for India are not yet available but some forecasts put it above seven percent.
“The previous administration gave us a strong and stable economy that we can build on further by maintaining the sound macroeconomic, fiscal, and monetary policies already in place. It is also encouraging to note that the growth has been investment-driven,” Pernia said.
“The challenge is to make this growth inclusive so that more people contribute to, and benefit from it. For this, we must improve the competitiveness of our markets and business climate to take advantage of the new surge of investments in the region. Importantly, we must look at the sectors and geographic areas that have been lagging behind and determine how to improve their access to these opportunities,” he added.
On the demand side, investments had the highest contribution of 5.7 percentage points to GDP growth. Investments in durable equipment rose 42.8 percent and private sector investments in construction grew 8.3 percent from 8.1 percent in the first quarter.
This growth was driven by stronger business confidence, low interest rates, and strong performance of the construction sector, the government said.
Public spending remained strong, driven by the boom in public construction and government consumption, which grew by 27.8 percent and 13.5 percent, respectively.
Similarly, private consumption grew stronger in comparison to the previous quarter and year due to the low inflation and interest rates, improved labor market conditions, and steady consumer confidence. With Julito G. Rada, Bloomberg
Overall, domestic demand growth accelerated to 12.3 percent from 12.0 percent in the first quarter of 2016.
In contrast, external demand weakened further, as exports of goods and services continue to slow down to 6.6 percent, despite the 15.3 percent growth of services exports.
Conversely, imports of goods rose to 22.9 percent largely due to increased purchases of capital goods and durables, which indicate an increase of investments from companies.
Services imports remained strong at 13.3 percent, significantly higher than the 10.3 percent in the previous quarter.
On the supply side, the acceleration of economic growth was fairly broad-based.
The high growth recorded for the second quarter of this year was driven by gains in the industry and services sectors. The industry sector recorded a growth of 6.9 percent, which is higher than the 6.1 percent growth in the previous year, supported by manufacturing, construction, and utilities.
Additionally, the services sector recorded an 8.4-percent growth, on the back of faster growth in trade, transport communication, public administration and real estate, renting and business activities.
The performance of the agriculture sector remained dismal, declining 2.1 percent due to the lingering effects of El Niño. Pernia noted the risk is expected to intensify from August to October this year.
“This highlights the urgency of crafting holistic agriculture development policies that include disaster resiliency. This will benefit workers from the sector, which employs the biggest chunk of our labor force,” Pernia said
He said for La Niña, the Department of Agriculture is already drafting a plan that identifies the most vulnerable municipalities, focusing o nappropriate interventions, preparedness, response, immediate recovery and rehabilitation.
“While we discuss these economic numbers, it is important to recognize that these should be treated as means to an end. What really matters is that welfare especially of the least among us is improved,” Pernia said.
According to the World Bank’s 2016 Global Economic Prospects report, Philippine economic prospects remain among the most robust in the region despite the doldrums in the West and risks of a slowing Chinese economy.
Along with the World Bank, the Asian Development Bank and the International Monetary Fund all point to Philippine economic growth of above six percent, higher than the average growth forecast for the Asean-5.
“Our strong macro-economic fundamentals will buffer the Philippine economy from external shocks,” Dominguez said.
Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said economic growth targets set by the government in the next few years will be attainable if policy reforms are sustained.
Reacting to the seven percent GDP growth rate for the second quarter, Guinigundo said sustained infrastructure and social spending would be vital factors for a robust economy.
“We would expect that with ample liquidity and credit available in the system, higher domestic demand especially from stronger public spending will sustain our high growth path. With more confidence in the Philippines’ growth prospects and commitment to policy reforms, we are confident the growth targets for the next few years are very doable. Infra and social spending remain critical,” Guinigundo said. With Julito G. Rada, Bloomberg