Efforts by the government to catch up on its infrastructure spending in the second quarter fell short as public construction was again cited as a major factor that contributed to the slowdown in the country’s economic growth to only 3.4 percent.
On Wednesday the National Statistical Coordination Board (NSCB) said the “less than desirable” growth was less than half of the 8.9-percent growth in the same period last year and sent growth in the first half of 2011 plummeting to only 4 percent.
Revisions in the first-quarter figures also saw growth down to 4.6 percent from the initial estimate of 4.9 percent.
“On the demand side, the growth came mainly from consumer spending as fixed capital formation, particularly construction, has not really felt the promise of the Public-Private Partnership Program, while external trade has been lackluster at best,” NSCB Secretary-General Romulo Virola said in a statement.
The growth in the second quarter was well below the expectations of economists, as well as the National Economic and Development Authority (Neda), which estimated growth at around 4.5 percent to 5.5 percent. The median estimate of seven economists surveyed by Bloomberg News was for expansion to ease to 4.1 percent.
“There is a need to implement policies to help growth recover, which includes attracting more investments, keeping interest rates low,” said Antonio Espedido, a treasurer at China Banking Corp. “It’s a tough juggling act but it seems growth is the bigger problem now, not inflation.”
John Forbes, senior adviser of the American Chamber of Commerce of the Philippines, said the second-quarter result is “quite disappointing” although he recognized the subpar performance was also due to external factors.
“But I am hopeful the second half of this year will see higher growth than in the first quarter, when the government was underspending and there were adverse external events in Europe, Japan and the United States,” Forbes said.
Trade Secretary Gregory L. Domingo expected the GDP growth to fall below 5 percent because of the weaker-than-expected exports, particularly for the electronics industry.
“That is why I expect some weakness in the GDP for the second quarter. But in the second half, electronics is expected to recover,” Domingo said.
Neda Assistant Director General Ruperto Majuca explained that while the agency expected a contraction in public construction in the second quarter, they were only looking at a single-digit decline. The Neda also hoped this could be offset by an increase in private construction activity, he said.
“We knew there would be a contraction in public construction but not that large. We expected the contraction to be a single-digit contraction. It turned out the contraction in public construction was bigger than what we hoped,” Majuca said.
In the second quarter, the construction sector as a whole shrank by 13.5 percent compared with the impressive 25.2-percent growth a year ago. Consequently, construction fell 5.2 percent in the first half, significantly lower than the growth of 19.3 percent in 2010.
Data showed that public construction contracted by as much as 51.2 percent in the second quarter from a growth of 27 percent last year. For the first half, public construction was down 47.8 percent compared to a 22.1-percent growth a year ago.
The lack of public construction spending in the second quarter was too great that even a steady, albeit slowing growth of 19 percent in private construction, was unable to boost the overall construction number. In the first six months of the year, private construction grew 20.5 percent.
“Investments in public construction have now posted four consecutive quarters of decline, which started in the third quarter of 2010. In fact, the second-quarter level of public construction investments in 2011 is the lowest in the last four years, while the 51.2 percent decline is the lowest since the third quarter of 1988,” Virola said.
The NSCB also largely attributed the lower-than-expected first-quarter growth of 4.6 percent to government underspending.
Meanwhile, on the production side, the industry sector was cited as the main culprit for the slowdown after it shrank 0.6 percent compared with a double-digit growth of 15.7 percent in the same period last year. With this, industry growth was only 3.1 percent in the first half.
Just last week, the Neda said it expected a 3.7-percent to 5-percent growth the industry sector in the second quarter.
Moreover, data showed that both the manufacturing and mining and quarrying subsectors significantly slowed in the second quarter. Manufacturing growth expanded 4.8 percent in the second quarter and 6.8 percent in the first semester of 2011, compared to 13.2 percent and 15.7 percent, respectively, last year.
Mining and quarrying slowed to 3 percent in the second quarter from 24.4 percent a year ago. In the first half, the subsector’s growth was only 9.2 percent in 2011 from 15.2 percent a year ago.
On the other hand, the agriculture, hunting, forestry and fishery, as well as the services sectors kept the economy afloat. Agriculture grew 7.1 percent in the second quarter and 5.6 percent in the first half, while services expanded by 5 percent in the second quarter and 4.2 percent in the first half.
The growth of the services sector was expected since all its subsectors posted positive growth, led by the financial intermediation subsector, which grew 9.9 percent in the second quarter and 8.2 percent in the first half.
For the government to achieve its full-year target of 7-percent to 8-percent growth, it must work toward achieving GDP growth of between 9.9 percent and 11.8 percent in the second half, according to the NSCB.
“To attain the 7-percent to 8-percent growth target for 2011, the economy needs to grow by at least 10 percent in the second semester,” Neda Director General Cayetano W. Paderanga Jr. said in a briefing on Wednesday.
But Virola noted that a growth of 9.9 percent has never been done before. Historically, using constant 1985 prices, he said the country’s highest economic growth was recorded in the second quarter of 2010 when the economy grew 8.9 percent.
”This came about in the first half of 2010, in the second quarter, due to election-related expenditure. Without elections, a growth this high is not very likely. Maybe in 2013,” Virola said.
With the 3.4-percent second-quarter growth, former Budget Secretary Benjamin Diokno said he now expects the economy to grow by only 4.6 percent this year.
Unless the government acts “more decisively” and works to implement programs and projects more efficiently, public-construction spending will continue to be low in the second half of the year, he said.
Apart from public construction, Diokno also believes that trade will continue to be lackluster in the second half due to “very weak” global economy.
Thailand’s growth unexpectedly slowed in the last quarter as it joined China, South Korea, Hong Kong, Malaysia, Singapore and Taiwan in reporting the slowest expansions since 2009.
Philippine exports tumbled the most since September 2009 in June, with shipments abroad dropping 9.4 percent from a year earlier. Overseas sales account for about 30 percent of the economy.
“The dismal performance of the export sector is, to a large extent, due to the worsening world economic situation. Growth forecasts for 2012 for almost all developed and developing economies have been downgraded. The odds of a double-dip recession have grown sharply in the US and Europe. But the weak export performance may also be due to the strengthening of the peso owing to the unabated entry of ‘hot money’ into the Philippines,” Diokno said.
Paderanga said the government is still hoping that the economy will grow by 5 percent and above in the second half, adding that the Development Budget Coordination Committee will likely revise its full-year forecast in its next meeting.
The Neda chief said prospects for second-semester growth are better due to increased consumption owing to the holiday spending; the increase in manufacturing growth, particularly in food manufacturers; an increase in investment rate due to positive business-confidence surveys; and improved government spending.
Expediting infrastructure spending is going to be the main thrust of the Department of Budget and Management (DBM) and the Department of Public Works and Highways for the second half, Macuja said.
The DBM, Paderanga said, has already set timelines for the processing of the notices of cash allocation (NCA) and allowed government agencies to pay their creditors and contractors using their available NCA. The government also expedited programs like Doctors to the Barrios and Rural Health Practice Program for hiring of nurses and midwives.
He said the government is looking at increasing spending to P240.3 billion in the second half. This includes the internal revenue allotment requirement for the months of September to December, cash grants for Pantawid Pamilyang Pilipino Program, financial assistance to local government units, health services, housing projects, and government-owned and -controlled corporation needs.
“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,” Paderanga said.
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By: Cai U. Ordinario with Max de Leon, Bloomberg News
Source: Business Mirror, Aug. 31, 2011
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