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Philippines misses GDP growth target for 2019

News Reporter: Ralf Rivas

(UPDATED) GDP growth picks up in the 4th quarter of 2019, but the impact of the
budget impasse proves to be too much as the overall target is not met.

MANILA, Philippines (UPDATED) – The Philippines' gross domestic product (GDP)

grew by 6.4% in the 4th quarter of 2019, but it was not enough to propel the year's
average within the government's target band.

The government aimed for economic growth to hit somewhere between 6% and 6.5%,
but the 2019 average settled at 5.9%, said the Philippine Statistics Authority (PSA) on
Thursday, January 23. This is the slowest growth in 8 years.

GDP growth needed to be at least 6.8% to cling on to the lower end of the target.

For the 4th quarter, services recorded the fastest growth at 7.9%, followed by industry
at 5.4% and agriculture at 1.4%. For the whole year of 2019, services posted growth of
7.1%, while industry and agriculture registered growth rates of 4.9% and 1.5%,
respectively.

Meanwhile, per capita GDP for 2019 stood at 4.6%.

Growth was much slower than expected during the first half of the year due to the
delayed passage of the 2019 budget over alleged pork barrel or illegal funds. The
reenactment of the budget meant government underspending of over P1 billion per day
for 4 months and stalled infrastructure projects. (READ: Budget delay kept 420,000
Filipinos poor – economic team)

"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," said Socioeconomic Planning Secretary Ernesto Pernia.

"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. Going forward, there is a need to reconfigure budget and disbursement
protocols that are more robust," he added.

Pernia also cited the mild El Niño during the first half of 2019, the spread of African
swine fever in Luzon, as well as the global slowdown due to the trade war between the
United States and China as drags for growth.
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"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.
The entry of these [multinational companies] 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 said.

The impact of monetary tightening by the Bangko Sentral ng Pilipinas (BSP) in 2018
was also felt in the first months of 2019.

"The growth miss and recent volcanic eruption's damage could prod the BSP to cut
policy rates sooner rather than later. We continue to pencil in a 25-basis-points rate cut
at the February 6 meeting given the disappointing growth numbers," said Nicholas
Mapa, senior economist of ING Bank Manila.

The downward revision for the 3rd quarter from 6.2% to 6% also did not help lift the
overall figure. The PSA noted slower growth in other services and construction.

The GDP is an economic indicator which accounts for all the finished goods and
services produced within the country in a specific period. It is the most common
measure of an economy's size.

Why is there disappointing growth, given the country's potential? Let's talk about lower
investments and the weakening of industry that mainly discussed on the theories of
development.
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Last, last month the Philippine Statistics Authority (PSA) released its much-awaited
report on the size and growth of the Philippine economy in 2019, as measured by gross
domestic product or GDP.

Although economic growth last quarter picked up at 6.4%, for 2019 as a whole, growth
clocked in at a mere 5.9%.

This is low for a couple of reasons. Not only did it just miss the government’s growth
target of at least 6%, it’s also the lowest growth rate in 8 years. Growth also slid in 2019
for the 3rd consecutive year.

Sure, our economy is still growing, and 5.9% is respectable vis-à-vis the growth of some
Asian neighbors. But for a country with so much potential, 5.9% leaves much to be
desired.

Now, let’s look at the reasons behind this disappointing growth, and I’d like to highlight
the decline of investments from the private sector, as well as the weakening of industry.
The trouble is, we’re not talking about these unsettling developments as much as we
need to.

Decline of investments that ‘Linear Stages of Development’ and ‘Structural Change

Models’ emphasized. Furthermore, to clear how this theories explain further, we can
look at what Filipinos are spending on. For every P100, P69 was spent by you and me
on consumption goods like food and clothing; P29 was spent by private investors on
machinery and equipment; and P12 was spent by government on officials’ salaries and
infrastructure projects. Take away P10 from total spending, because we imported more
than we exported.

Drilling down further, we see that private investments dropped mostly on account of the
poor production of “durable equipment,” which comprise road vehicles,
telecommunications equipment, mining and construction machinery, and office
machinery.

Construction projects by the private sector did somehow counteract this dip in durable
equipment. But even private construction’s contribution to growth fell from the previous
year.

Other thing that become the obstacles of freedom of economic development is we have
weaker industry. Some of these trends come as no surprise. In the past decade
services have always been strong, and agriculture has always been weak.
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What’s surprising is the sudden weakness of industry, whose contribution to growth fell
to its lowest level since 2011. This comes after years of robust, sizable industrial
growth.

Inspecting industry further, we can see that manufacturing and construction faltered the
most. This, at a time when the government is pushing for both a Manufacturing
Resurgence Program and an ambitious infrastructure project called Build, Build, Build.

Industry’s newfound weakness is unfortunate. Some economists think industry is still

one of the best and fastest ways to grow our economy: for the same amount of inputs,
industry still produces more valuable output than services or agriculture.

Other economists, however, contend that services might prove to be a suitable

alternative ladder to growth nowadays, albeit less productive. After all, a full resurgence
of the country’s industrial sector in the 21st century is arguably unlikely.