Growth surges in Q4, but fails to lift full-year 2019 target

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A spike in government and construction spending boosted economic growth in the last three months of 2019, but was not enough to pull full-year expansion to 6 percent. (FILE PHOTO)

Metro Manila (CNN Philippines, January 23) — A spike in government and construction spending lifted economic growth in the last three months of 2019, but was not enough to pull full-year growth to 6 percent, the Philippine Statistics Authority said Thursday.

Fourth-quarter growth clocked in at 6.4 percent, sustaining an uptrend in total output seen since the third quarter. However, growth failed to hit the government's downscaled target at 6-6.5 percent, instead settling at 5.9 percent.

The annual pace is the slowest in eight years, Socioeconomic Planning Secretary Ernesto Pernia said, and marks the third straight year of a slowdown under the Duterte administration. Pernia said on Monday that he expects a growth rate of at least 6.6 percent during the fourth quarter.

Pernia noted that public construction rose sharply between October-December, rising by 34 percent as road projects and government buildings under the Department of Public Works and Highways have been completed.

Economic managers had to lower the growth goal following a slowdown during the first six months, attributed to the delayed passage of the national budget and the ban on public works running up to the midterm elections.

READ: 'Politicking' over 2019 budget left more Filipinos poor, unemployed – Dominguez

Citing estimates, Pernia said the economy lost a full percentage point from the delayed rollout of projects, as new and continuing items in the budget were left unfunded for the first four months of the year. The economy could have grown as fast as 7 percent, the Cabinet official said.

State spending surged to 18.7 percent in the fourth quarter to bring the full-year climb to 10.5 percent. This, however, is more modest versus the 13 percent increase logged in 2018. Meanwhile, household spending picked up by 5.8 percent in 2019, better than its previous 5.6 percent.

Bank economists agree, saying that 2019 growth would have performed way better. "The almost 5-month delay signing the 2019 budget into law shaved off roughly 0.4 percentage points to growth as projects were mothballed and civil servants not hired," ING Bank senior economist Nicholas Mapa said, adding that the economy may need a boost "from both fiscal and monetary policy."

Pernia thanked Congress for passing the budget on time for 2020, with the spending plan signed into law in the first week of January. "We now need to significantly improve the absorptive capacity of government agencies for faster implementation and completion of key social programs and infrastructure projects," he said.

Agriculture slump

The services sector led growth in 2019 as it expanded by 7.1 percent, followed by industry at 4.9 percent, the PSA said. Agriculture grew by just 1.5 percent, National Statistician Dennis Mapa said in a press briefing.

READ: Farm output posts small growth in 2019

Farm production stood flat compared to the previous year, weighed down by a slump in rice prices coupled with the African swine fever that hit piggeries in parts of Luzon. Pernia said 136,770 pigs were culled to prevent the further spread of the disease infecting hogs.

Looking ahead, Pernia said better weather conditions — with slim chances of another El Niño phenomenon and fewer typhoons in the offing — should bode well for agriculture. Finance Secretary Carlos Dominguez III once said that farm output must at least grow by at least 2 percent annually to match the demands of a growing population. 

The economy grew by 5.6 percent in the first quarter, 5.5 percent in the second quarter, and 6 percent in the third quarter. Still, Pernia said the Philippines would likely remain among the fastest-growing economies in the region next to Vietnam, which reported a 7 percent expansion last year.

The economic official said prospects for 2020 remain "hazy," but faster growth could be expected with the budget passed on time.

Among Pernia's looming concerns are the eruption of Taal volcano, which could affect farmers and fisherfolk in Calabarzon. Local inflation should also be mitigated, as it could reel from possible oil price spikes due to tensions in the Middle East. Uncertainties in global trade, geopolitical tensions, and climate-related disasters must also be on close watch.

READ: Foregone income from Taal eruption may hit ₱6.7B – NEDA

Exports plunged in 2019, growing by just 3.2 percent versus a 13.4 percent increase in outbound shipments of goods and services the prior year, data showed.

Embrace reforms

Pernia stressed that the government should adapt rather than curtail emerging technology, particularly motorcycle taxis, which have been useful to commuters for beating urban traffic.

"Innovations in ride- and room-sharing services, such as those offered by Angkas, Grab, Airbnb, and other similar services need to be encouraged. The government should not be an obstacle to such innovations," he added, as he also lobbied for Congress approval ofn remaining tax reform measures, budget reform, a Department of Water, and a national competition policy.

Pernia said more "favorable" conditions would fast-track growth this year. The government is targeting to expand the economy by 6.5-7.5 percent.

"This fiscal spending plan may act as an insulation from the external environment threats of volatilities and uncertainties," UnionBank chief economist Ruben Carlo Asuncion said, forecasting a 6.6 percent climb for the year ahead.

The PSA will use different metrics to measure economic growth starting the first quarter of 2020, as it will now be using constant prices from 2018. Latest growth figures are based on prices from the year 2000.

Pernia said on Monday that he expects a growth rate of at least 6.6 percent during the fourth quarter. He added that the outlook remains "hazy" for 2020 amid global threats, although most economic institutions believe the Philippine economy would perform better this year.

READ: IMF finds new reasons to worry about the global economy