By Chino Leyco
The Philippine economic growth registered a mere 5.6 percent gross domestic product (GDP) in January to March this year, slower compared with the 6.1 percent in the previous quarter and 6.0 percent in the same period last year.
The economic slowdown, its slowest pace in four-years, was attributed to the failure of Congress to pass the 2019 national budget on time, the National Economic and Development Authority (NEDA) said Thursday. The lower GDP in the first quarter of the year halted its 15 straight quarters of 6.0 percent and above expansion rate.
The softer GDP figure, the weakest since the 5.1 percent expansion in the first-quarter of 2015, was dragged down by the re-enacted budget that restricted the Duterte administration to increase its monthly spending by at least P1 billion since January.
As early as January, President Duterte’s economic team, which includes Socioeconomic Planning Secretary Ernesto M. Pernia, warned that operating under a 2018 re-enacted budget this year would weaken the economy as it limits government’s spending program.
From the original 7.0 percent to 8.0 percent GDP growth target, the economic managers revised downward its goal to between 6.0 percent and 7.0 percent, which Pernia believes is still “achievable” despite the disappointing 5.6 percent figure in the first three months of the year.
“As we have forewarned repeatedly, the re-enacted budget would sharply slow the pace of our economic growth,” Pernia said. Had the 2019 General Appropriations Act (GAA) passed into law before the end of last year, the NEDA estimated the GDP expanded by 6.6 percent.
At end-March, the government final consumption expenditure grew by 7.4 percent, slower compared with 13.6 percent in the same period last year, while public construction contracted by 8.6 percent.
Pernia also cited that the Department of the Interior and Local Government’s construction of police stations and purchase of new equipment and the Department of Education’s repair and rehabilitation of school buildings were severely hampered.
“As we have already mentioned, the delay in the approval of the 2019 budget has weakened down domestic demand. What is needed is for government to quickly implement and disburse the fiscal program as indicated in the 2019 GAA,” Pernia said.
To reach the full-year growth target, the economy will need to expand by an average of 6.1 percent in the next three quarters.
“This [target] is still achievable given the current performance of the private sector and if the government sector is able to jumpstart and speed up the implementation of its new programs and projects,” Pernia said.
In the first-quarter, household spending increased by 6.3 percent due to improved consumer sentiment and slower price increases or inflation, while export growth decelerated to just 5.8 percent along with imports that softened to 8.3 percent.
On the supply side, the industrial sector posted the biggest growth slide at 4.4 percent, services with 7.0 percent, which was the biggest contributor to growth.
The agriculture output, on the other hand, rose by a mere 0.8 percent, which Pernia said needs to be prioritized to mitigate the impact of El Niño seen to last until August.
Meanwhile, Finance Secretary Carlos G. Dominguez III said the first-quarter growth was a “decent expansion” and the government expects the economy to expand at a higher clip for the rest of the year as inflation continues trending towards the official target range of 2.0 percent to 4.0 percent.
Dominguez also vowed the government will accelerate the implementation of infrastructure and human capital development projects to make up for the state underspending prompted by the quarter-long delay in the approval of the budget.
“The budget impasse in the Congress during the year’s first three months had set off a spending cutback, which, in turn, stifled economic activity,” Dominguez said.
“Economic growth is expected to finish stronger over the April-June period and for the rest of 2019 as the government puts ‘Build, Build, Build’ on the fast lane following the passage of the 2019 GAA and domestic consumption picks up amid cooling inflation,” he added.
In implementing a catch-up plan to accelerate state investments, Dominguez said: “the Duterte administration aims to offset the lower spending at the outset of 2019 resulting from the budget delay and the construction ban during the election season.”
“Henceforth, we expect growth to pick up on higher state spending in the continuance of last year’s upward momentum,” he added.