Philippine Economy Posts Slower Growth in 1st Quarter of 2018

The Philippine economy expanded 6.8 percent in the first three months this year, but missed government projections of an expansion between 7 percent and 8 percent, largely due to high inflation, the chief government economist said Thursday.

Yet the growth rate was still slightly higher than the 6.4 percent registered during the first quarter of 2017, Socioeconomic Planning Secretary Ernesto Pernia said.

It was the 10th consecutive quarter that the Southeast Asian nation experienced a growth rate of 6.5 percent or better, he said.

“It is at par with market expectations … and close to the low-end of our full-year growth target of 7 percent to 8 percent for 2018,” Pernia told reporters.

Last year, the economy grew by 6.7 percent – a slower pace than the 6.9 percent in 2016, which was an election year that got a boost from campaign spending.

Growth-rate targets could have been achieved if not for the inflation uptick in the first three months of 2018, he said.

“So, inflation is the spoiler, that is why we really need to focus on inflation especially because it is the No.1 concern expressed by Filipinos in surveys,” Pernia said.

The inflation rate hit 4.5 percent last month, much higher than the 3.2 percent during April 2017.

Despite the slowdown, Pernia said the Philippines remained “one of the best-performing economies in the region” next only to Vietnam’s 7.4 percent growth and higher than Indonesia’s 5.1 percent during the same period.

“This performance demonstrates that we have firmly laid the groundwork for reforms in some of the sectors of the economy,” Pernia said, adding that because of the higher inflation rate, private consumption also fell slightly.

External demand also weakened significantly.

Growth in exports eased to 2.9 percent, after consistent growth averaging 21.1 percent in 2017. Net exports worsened during the quarter.

“This is something we need to keep an eye on,” Pernia said.

He said that the government was on track to meet full-year growth targets, with domestic demand expected to rise in view of higher income and consumption.

“Our country’s growth implies that we have the potential to become an upper middle-income country, perhaps even as early as next year,” Pernia said.

Golden age of growth

In a statement, Finance Secretary Carlos Dominguez said the Philippines was “on its way to achieving its targets for high growth and financial inclusion” for the rest of President Rodrigo Duterte’s four years in office.

He said the government had embarked on an aggressive pump-priming activity by spending more on anti-poverty activities and infrastructure.

“President Duterte’s commitment to attaining an investment-led and inclusive economy via a massive public-spending strategy would usher in what the Asian Development Bank (ADB) has forecast to be the ‘golden age’ of the Philippines’ economic growth,” Dominguez said.

ADB, a Manila-based multilateral lending agency, has said that the Philippines’ potential for more growth was sustainable, with more than 70 percent of labor productivity expected to come from the manufacturing sector.

Ramesh Subramaniam, ADB’s director general for Southeast Asia, said that if the government’s aim was to substantially cut poverty by 2022, then it would have to focus on the southern region of Mindanao, a mineral-rich area where large parts remained mired in poverty due to years of rebellion.

“We believe the ‘build, build, build’ program of the government will help bring down poverty,” he said.

Felipe Villamor in Manila contributed to this report.