The economy grew by 6.2 percent in 2018, its slowest rate of growth in three years, the Philippine Statistics Authority reported Thursday.
The 2018 growth in gross domestic product missed the government’s official target of 6.5 to 6.9 percent for the year and was the slowest since 2015’s 5.8 percent. In the fourth quarter of 2018, the GDP measured 6.1 percent, down from 6.5 percent in the same period of 2017.
The PSA attributed the slower growth last year to sluggish agricultural production and rising inflation.
Despite the slower growth, the Palace said it was confident that the country was “on the right track” to reaching the economic targets for 2019.
The country’s economic managers, meanwhile, issued a joint statement saying the economy remained stable.
Industry-led all sectors in 2018, growing 6.8 percent, followed by services with 6.6 percent. Agriculture hardly grew, with a 0.8 percent rise.
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In the fourth quarter, the industry grew 6.9 percent while services expanded 6.3 percent. Agriculture rose by 1.7 percent.
“The main drivers of growth for the quarter were construction; trade and repair of motor vehicles, motorcycles, personal and household goods, and other services,” the PSA said.
Economists earlier blamed the high inflation rate and lower agricultural output for the slowdown in third-quarter GDP at 6 percent. They said faster increases in consumer prices caused a decline in household spending for the period.
The agriculture sector was also hit by successive strong typhoons in August and September, affecting the provinces of northern Luzon, whose main products are rice and other agriculture products. This resulted in higher food prices toward the later part of the year.
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Economic managers—composed of Finance Secretary Carlos Dominguez III, Socioeconomic Planning Secretary Ernesto Pernia, and Budget Secretary Benjamin Diokno—said the Philippines was still one of the fastest-growing economies in Asia.
“We are next to India, Vietnam, and China. From first quarter to third quarter of 2018, we overtook Indonesia and Thailand in terms of economic performance. As we are now on a higher growth trajectory, with our economy growing at an average of 6.5 percent in the first 10 quarters of this administration, we want to focus more on sustaining this momentum,” they said in a statement.
They said the robust performance of industry was fueled by a surge in construction.
“That’s a good indicator of the continuing driving force of the Build, Build, Build program,” they said, referring to the administration’s massive infrastructure build-up.
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But they said manufacturing was an area of concern. For the last quarter of 2018, it only grew by 3.2 percent, a deceleration from 7.9 percent during the same period in 2017. This was due to weak business confidence and policy uncertainties, coupled with sluggish export demand amid a global economic slowdown.
“To remedy this, the government needs to first address the policy uncertainties, increase macro-competitiveness by enhancing the efficiency of transport, communications, and the overall logistics network. To ensure inclusivity, we need to focus on the integration of industries between small and medium enterprises on one hand, and large establishments on the other,” the economic managers said.
“We also need to attract more investments. Hence, we favor the moves in Congress to amend the Foreign Investment Act, the Retail Trade Act, and the Public Service Act,” they said.
In agriculture, the decline in palay production, sugar cane, and cassava tempered the gains of the sector in the fourth quarter. This was also due to several typhoons that hit Luzon and inadequate irrigation and insufficient rainfall in Central Visayas.
On the demand side, household consumption improved slightly amid increased private spending on food and non-alcoholic beverages. This was largely due to slower inflation rates for these commodities.
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The economic managers said government spending nearly doubled from 2017 to 2018. Aside from spending on personnel services, maintenance and operating expenses, the government continued to pump money into social protection services such as the Pantawid Pamilyang Pilipino Program.
The economic managers said they expect household consumption to recover as inflationary pressures subside, given the “subdued outlook” for world oil prices and the expected reduction in rice prices because of import liberalization.
Given the delay in passing the 2019 national budget, the economic managers said using a reenacted budget would cut government spending in the near term. The 45-day ban on state spending before the May elections could also delay some infrastructure projects, they added.
On the other hand, the upcoming midterm elections and preparations for the Southeast Asian Games in November would spur spending, they said. The creation of the Bangsamoro Autonomous Region in Muslim Mindanao would open up growth prospects both for the region and for the wider economy, they added.
Nicholas Mapa, senior economist of ING Bank Manila, said 2019 would likely remain “a tale of two halves” with the first six months of the year to see relatively subdued growth as the government budget delay handicaps government expenditures.
With inflation easing, the central bank is likely to ease up on interest rates, which kept investments at bay in 2018, he added.
Earlier, First Metro Investment Corp., the investment banking arm of the Metrobank Group, said the economy could grow faster this year by 6.8 percent to 7.2 percent, on the back of consumption spending amid the decelerating inflation rate and strong macroeconomic fundamentals.
First Metro president Rabboni Francis Arjonillo said in his company’s annual economic briefing in Taguig City that the 2019 growth projection was faster compared to 2018 as the economy was poised to regain strength.
“The Philippine economy is again in a growth trajectory. Apart from the country’s strong macroeconomic fundamentals and expected inflation easing this year, another important factor in pushing economic growth is the continued policy reform drive of the Duterte administration,” Arjonillo said.
He said this includes tax reforms, a reduction in corruption and red tape, broadening the base of the financial system and facilitation of new and disruptive technologies.
He said inflation was on a clear downward trend and expected to taper off to 3 to 5 percent due to the normalization of food supply and lower global oil prices.
Arjonillo said the upturn in consumption spending could be expected as a result of easing inflation rate. Other factors that could contribute to sustained economic expansion would be a recovery in manufacturing and an increase in tourist arrivals.
Bangko Sentral Deputy Governor Diwa Guinigundo said he expected domestic demand would recover and strengthen in 2019.
“With price pressures held on a tight leash, public spending being sustained despite the delay in the passage of the national budget and of course, investment should receive some boost with inflation coming down,” he said.
He said monetary policy will continue to be watchful of both price pressures and the liquidity needed to sustain economic activities.
Presidential Spokesman Salvador Panelo said the administration’s economic managers would work harder to hit growth targets in 2019.
“If you have a target and you were not able to reach it, of course, you will be disappointed, but it doesn’t mean that you [should] feel that you’re such a failure. You work harder so you can reach your target,” he said.
The Philippine Chamber of Commerce and Industry said the growth in inflation, caused by high food and fuel prices, led to a slowdown in economic growth in 2018.
“These factors significantly contributed to the slowdown in household consumption, which has a strong bearing on the GDP,” PCCI president Alegria Limjoco said.
She noted that the global price of oil is seen to fall this year while the government is already addressing food prices through the Rice Tariffication Act, which they hoped the President would sign into law soon.
Limjoco said the PCCI fully supports government moves to deregulate most of the agricultural sector.
“We fully support this move. Especially for the processed food industry, we urge government to open up the importation of sugar to make the industry more competitive. This should also help strengthen our export sector, which suffered a slump last year. Food exports comprise about 10 percent of our total exports,” Limjoco said.
Government also has to eliminate port congestion issues and create certainty in the labor market by settling the issue of jobs contractualization to further encourage foreign direct investments in the country, the group said. With Nat Mariano