Statement of Sec. Paderanga on the Q2 2011 National Income Accounts
August 31, 2011 at 09:53
This is a re-posted statement.
Growth of the Philippine economy eased to a modest 3.4 percent in the second quarter of 2011. In comparison with the country’s Asian neighbors, this GDP growth is faster than that of Thailand’s 2.6% and Singapore’s 0.9% but slower than China’s 9.5%, Indonesia’s 6.5%, Vietnam’s 5.7%, and Malaysia’s 4.0%.
However, this GDP growth is below NEDA’s forecast of 4.5-5.5 percent, as well as private analysts’ average projection of 4.9 percent, and some international organizations’ average outlook of 5.0 percent in the second quarter.
Growth drivers
On the supply-side, growth was driven by the strong turnaround of the agriculture sector (7.1%), particularly sugarcane, palay, and corn, as well as the modest expansion of the services sector, primarily financial intermediation, real estate, renting and business activities, and other services subsectors.
On the expenditure-side, growth was spurred by household and government consumption. This was constrained by surges in world oil prices, triple disasters in Japan, slow recovery of the US and European economies, the social unrest in the Middle East and North Africa (MENA) region, and adverse weather conditions, which negatively affected the fishing subsector. Moreover, the second quarter growth in 2011 was expected to have been lower than the growth in the same period last year due to tapering off of the base effect and the absence this year of growth drivers in the second quarter of 2010, such as election-related spending and the stronger than expected global economic recovery.
The 2.8 percent contraction in net primary income, mainly due to the lower net compensation as overseas Filipinos (OF) remittances grew by only 1.4 percent in peso terms, resulted in a 1.9 percent growth in gross national income (GNI).
With a second quarter GDP growth of 3.4 percent and a revised first quarter GDP growth of 4.6 percent, the first semester GDP growth for this year is 4.0 percent. To attain the 7-8 percent growth target for 2011, the economy needs to grow by at least 10.0 percent in the second semester.
Outlook for rest of the year (2011)
Prospects for the second half of 2011 are better than the first half’s performance. Agriculture production will be supported by the strong prospect for palay production. The Bureau of Agriculture Statistics has projected a 6.2 percent growth for palay in the second half of 2011. The manufacturing sector will be buoyed by the food manufactures. Real estate and private construction will continue to remain upbeat given the bright prospects in the property market, in particular the office, residential, retail and hotel/leisure submarkets. Other services and trade will be supported by inbound tourists, the number of which is expected to rise, on the average, by 6.3 percent in 2011. Mining is expected to benefit further from high metal prices in the world market. The latest actual data and forecasts of commodity prices show average double-digit expansions of metals and minerals for FY 2011.
Moreover, business sentiment has improved in the third quarter of 2011. Based on the Business Expectations Survey of the Bangko Sentral ng Pilipinas, the business confidence index rose to 34.1 percent from 31.8 percent in the second quarter of 2011, the first quarter-on-quarter uptick in sentiment after two consecutive periods of decline in confidence readings since the fourth quarter of 2010.
Also, public construction and government services are likely to pick-up due to the accelerated spending plan of government implementing agencies and the Department of Budget and Management (DBM) for the rest of the year. As the inflation path remains consistent with the 3-5 percent inflation target for the year, the transportation sector will likely accelerate in the last two quarters of 2011.
On the demand side, household consumption and investment will remain as the growth drivers. Household consumption will get a boost from the employment creation program, the continuing implementation of the conditional cash transfer program for the lower income deciles, the modest inflow of remittances, and the still well-anchored inflation expectations. Investments will continue to register positive increases given the bright outlook in the expansion plans of firms across the industry subsectors.
A strong economic performance in the last two quarters of 2011, however, is not without risks. Global downside risks could hamper our growth prospects. The International Monetary Fund (IMF) announced four days ago that although global economic recovery is on its way, risks to the global economy exist given the balance sheet problem and continuing weak consumption in the United States, and the fiscal problems and sluggish output in the Euro zone. Internally, the Philippines’ immediate concerns are delays in public spending, weak industry output, and timely recovery from natural calamities.
Considering the slow growth of the global economy, the possible spillovers of US and Euro zone problems, and a calamity-beaten agriculture sector, the Economic Development Cluster will be prioritizing tangible measures to boost domestic demand, accelerate fiscal spending, and take advantage of the benefits of closer integration of fast-growing ASEAN economies, in order to provide the needed employment opportunities to boost incomes and social welfare. These measures may include pursuing and accelerating infrastructure projects, diversifying domestic and external trade, sustaining domestic consumption, securing investments, and safeguarding price stability and the functioning of financial systems.
We want to optimize fiscal spending’s contribution to growth. As such, the accelerated spending program aims to fast-track government disbursements in the second half of the year, in order to shore up the level of economic activity. For instance, recognizing the low utilization and absorptive capacity of its departments and agencies, the government focused on fast moving expenditures to beef up its spending.
Also, the DBM has set timelines for the processing of the notice of cash allocation (NCA) as well as allowing the government agencies to pay their creditors and contractors using their available NCA. The government has also advanced the implementation of measures for 2012, such as Doctors to the Barrios and Rural Health Practice Program for the hiring of nurses and midwives.
The government expenditure for July 2011 was the highest in seven months, and the DBM sees that interventions to speed-up spending and implementation of programs and projects are already taking effect. Government spending may most likely reach as high as P240.3 billion, including the internal revenue allotment requirement for the months of September to December, cash grants for Pantawid Pamilyang Pilipino Program, financial assistance to LGUs, health services, housing projects and GOCC needs.
Thank you.
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Source: National Economic Development Authority, Aug. 31, 2011
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