The economy grew at its slowest pace in eight years in 2019, as the delayed passage of the budget early last year dragged growth to below the government’s full-year projection.
The National Economic and Development Authority (NEDA) and the Philippine Statistics Authority yesterday reported that economic growth in 2019 slowed to 5.9 percent, slightly below the low-end of the six to 6.5 percent revised target of the government for the year.
“We have seen our economy facing several challenges right at the start of 2019 as the budget impasse led to delays in the implementation of government programs and projects. Adding to the problem was the election ban on certain, mainly infrastructure, projects,” Ernesto Pernia, socioeconomic planning secretary, said in a press conference in Pasig City yesterday.
“I think our estimate before was a full percentage point was lost because of the delay in the passage of the budget. So if we just use that again, we could have hit close to if not right smack seven percent this year,” he said.
“Therefore, we are thankful that our colleagues in Congress and the Department of Budget and Management ensured the timely passage of the 2020 General Appropriations Act and also approved the validity extension of the 2019 fiscal program until the end of this year — both of which are critical to our efforts to spur economic growth,” he added.
For the fourth quarter alone, however, economic growth surged to 6.4 percent from the revised six percent in the previous quarter and 6.3 percent in the last quarter of 2018, which Pernia said is in line with the median forecast of the private sector.
“Compared with other major economies in the region that have already released their GDP (gross domestic product) growth in the fourth quarter, the Philippines likely ranked second only behind Vietnam’s seven percent, and higher than China’s six percent growth rate in the fourth quarter,” Pernia said.
On the demand side, growth in the fourth quarter was driven by the ramping up of government spending after the budget delay in the first half of 2019.
“Public construction significantly increased by 34 percent in fourth quarter 2019, with the completion of projects of the Department of Public Works and Highways, payment for the acquisition of right-of-way, and construction of government buildings,” Pernia said.
“On the supply side, the 7.9 percent growth in the services sector was mainly driven by the acceleration of public administration and defense, trade, and other services,” he added.
However, the NEDA chief said this was partly tempered by the slowdown in agriculture, as there were production declines in corn, sugar and banana primarily because of delayed planting and harvesting due to the El Niño phenomenon during the first half of 2019.
Livestock growth also moderated, Pernia said, following the strict implementation and monitoring of movements of live animals across provinces as local government authorities worked to avert the spread of the African swine fever.
“Going forward, there is a need to reconfigure budget and disbursement protocols that are more robust. We now need to significantly improve the absorptive capacity of government agencies for faster implementation and completion of key social programs and infrastructure projects,” Pernia said.
“We also need to swiftly address issues such as the difficulty in the acquisition of right-of-way, delays in procurement, restrictive auditing rules, and skills shortages,” he added.
Pernia likewise noted the need to effectively manage the country’s inflation to boost household consumption by proactively addressing potential supply shocks especially on key agricultural commodities.
“We must also remain vigilant on the developments in the international oil market with this recent emergence of tensions in the Middle East, which could put upward pressure on domestic oil prices and other energy-related items,” he said.
Meanwhile, Pernia mentioned continuing eruptions of the Taal Volcano and onslaught of typhoons in the latter part of 2019, which have brought significant damage in the agriculture and fishery sector in Calabarzon especially.
“The agriculture department and concerned local government units should fast-track the release of production support and cash/loan assistance programs to the affected farmers and fisherfolk, as well as the implementation of the recovery and rehabilitation plans for the affected areas,” Pernia said.
Citing the latest monitoring of the Philippine Atmospheric, Geophysical and Astronomical Services Administration, the El Niño-neutral situation will likely continue until the third quarter of the year, with only four to seven tropical cyclones expected to enter the Philippine Area of Responsibility from February to July 2020.
“The agriculture sector should take advantage of this relatively favorable weather condition to scale up its production, particularly of high-value crops. We also need to re-design our agriculture programs and projects to make them resilient to weather shocks and adaptive to climate change,” Pernia said.
During the press conference, Pernia also said the possibility of relocating manufacturing operations of multinational corporations (MNCs) due to trade disputes has opened up opportunities.
“We must now identify specific products for which the country could be an alternative manufacturing base, bearing in mind the comparative advantage for domestic players,” he said.
“The entry of these MNCs and international players could serve as a way to better integrate our domestic industries into the global value chain and bolster our manufacturing growth in the long run,” he added.
The NEDA chief also noted the need to encourage innovations in ride- and room-sharing services, such as those offered by Angkas, Grab, AirBnB and other similar services.
“Given the rapid advancements in technology that give way to industries in the sharing economy, government must upend existing rules and adopt new regulatory framework or approach to adapt to these advancements,” Pernia said.
“The government should not be an obstacle to such innovations. We must be able to assess social and economic impacts carefully, strive to understand the new environment, and to provide policy responses that are both clear and evidence-based,” he added.
For 2020, the interagency Development Budget Coordination Committee’s growth projection for the Philippine economy is 6.5 to 7.5 percent.
“Other things being equal, compared with 2019 I think the economic growth, given the favorable passage of the budget and also the extension of the 2019 budget until the end of the year, the favorable impact would be bigger in terms of economic performance,” Pernia said.
“Like we said, we need to address the absorptive capacities of government agencies, but so far that has not been a problem under this administration. We cannot be complacent, (but) we think it is very much achievable this year,” Rosemarie Edillon, NEDA undersecretary, for her part said.
In a statement, Carlos Dominguez, Department of Finance secretary, said yesterday he also sees higher economic growth this year driven by, among others, an even more vigorous government spending on infrastructure and social services, stronger domestic consumption resulting from benign inflation, and a revitalized agriculture sector.
“The pickup in growth in the fourth quarter of 2019 resulting in part from the government’s catch-up spending following anemic expansion in the year’s first semester will gain speed in 2020, with the domestic economy firing on all cylinders as a result of even more vigorous investments in infrastructure and human capital development for the entire year ahead,” Dominguez said.
He said the downside risks to growth this year include the possibly lingering impact of last year’s trade spat between the United States and China; any possible re-escalation of the US-Iran conflict that could induce global oil price volatility; and, depending on its intensity, an explosive eruption of Taal Volcano that could impact Metro Manila and neighboring regions.
