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Economic team lists risks as growth slows to 6.2%

Socioeconomic Planning Secretary Ernesto M. Pernia (right) and Undersecretary Lisa Grace S. Bersales of the Philippine Statistics Authority brief journalists on the Philippine growth performance for the fourth quarter and full year of 2018 Report at the PSA office in Quezon City on Thursday.

THE reenacted budget and the 45-day ban on government spending in preparation for the elections will delay the Duterte administration’s “Build, Build, Build” (BBB) program, according to the President’s economic team, highlighting more challenges as the country posted its slowest growth since 2015. 

In a joint statement, the National Economic and Development Authority (Neda), Department of Finance (DOF), and the Department of Budget and Management (DBM), said the slower-than-expected economic growth in 2018 and the delay in the BBB highlight the government’s priorities in addressing uncertainties. 

On Thursday, the Philippine Statistics Authority (PSA) said GDP in the fourth quarter slowed to 6.1 percent in 2018, from 6.5 percent in 2017. For the full year, GDP growth also decelerated to 6.2 percent in 2018, from 6.7 percent in 2017. It was the slowest full-year growth since 2015.

This is also below the Development Budget Coordination Committee’s revised growth target of 6.5-6.9 percent for 2018. 

“The reenactment of the 2018 budget as the basis for our spending this 2019 will likely have an impact on government spending in the near term. This implies that the government would not be able to quickly execute programs and projects under the proposed 2019 budget,” the economic team said.

“The 45-day ban on state spending prior to the May 2019 elections could also further delay implementation of infrastructure projects,” they added. 

In order to address these concerns, the President’s economic team said it aims to address competitiveness issues such as improving transport, communications and logistics. 

The government, it said, will also be working toward the integration small and medium enterprises and large establishments.

Downside risks

the Neda, DOF and DBM will also be on the lookout for downside risks such as those coming from the US-China trade tensions, slowing global demand, higher tariffs, and protectionist policies that stifle investments and disrupt global value chains. 

The economic team said other risks include tighter financing conditions in emerging markets due to the strengthening of the US dollar and rising risk premiums, as well as heightened geopolitical tensions.

The President’s economic team also does not discount inflation in 2019. They said this is why the government continues to pin its hopes on the passage and implementation of the rice tariffication law. 

The Neda earlier estimated that passing the law would lead to a reduction in rice prices nationwide of P2 to P7 per kilo. Further, the establishment of the Rice Competitiveness Enhancement Fund (RCEF) will be good for the farm sector.

The RCEF will finance key interventions such as farm machinery and equipment to improve farm mechanization, rice-seed development, propagation and promotion, expanded rice credit, crop diversification and extension services. 

The economic team said that to protect lower-income households from TRAIN law’s adverse effects on consumption, the Unconditional Cash Transfers and fuel vouchers should likewise be implemented in a timely manner.

“The Philippine economy has been strong and steady. For 2019, we call for a cohesive reform agenda for the country. As we near the release of the Socioeconomic Report 2018 and midterm updating of the Philippine Development Plan 2017-2022, we hope that the whole government will be on the same page in addressing the challenges of the different sectors.” 

Growth drivers

Potential growth drivers this year, meanwhile, would be the upcoming 2019-midterm elections and the preparations leading to the Southeast Asian Games in November. 

Further, the creation of the Bangsamoro Autonomous Region would likewise open up growth prospects both for the region and for the wider economy.

In 2018, the Philippine economy’s growth was buoyed by the Services sector, which accounted for 48.3 percent of economic growth, followed by Industry with 28.6 percent and Agriculture with 6.8 percent. 

The Agriculture, Hunting, Fishery and Forestry grew 0.8 percent in 2018, while Industry expanded 6.8 percent and Services, 6.6 percent. 

The Industry sector, the fastest-growing production sector of the economy in 2018, was driven mainly by Construction, which grew 15.9 percent last year. Construction posted its highest growth in the fourth quarter of 2018 at 21.3 percent. 

On a full-year basis, public construction dominated the construction sector with a growth of 21.2 percent, while private construction only rose 12.9 percent in 2018. 

In the fourth quarter of last year, private construction expanded faster than public construction with a growth rate of 20.2 percent, while public construction posted its slowest growth for 2018 at 16.3 percent. 

On the demand side, household final consumption expenditure (HFCE) accounted for 57.3 percent of GDP in 2018, while government final consumption expenditure (GFCE) cornered 9.4 percent of GDP. 

HFCE grew 10.8 percent in the full year and 11.4 percent in the fourth quarter in 2018. GFCE also grew 16.8 percent and 16.6 percent in the full year and fourth quarter of 2018, respectively.

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