ERNESTO M. PERNIA
Socioeconomic Planning Secretary
Press Conference on the Performance of the Philippine Economy
For the Third Quarter of 2018
November 8, 2018 | 10:00 a.m.
Astoria Plaza, Ortigas Center, Pasig City
Colleagues from the Philippine Statistics Authority;
Co-workers in government;
Friends from the media;
Ladies and gentlemen, good morning.
As the Philippine Statistics Authority has reported, the Philippines still grew at a respectable pace in the third quarter of 2018 at 6.1 percent from the second quarter of 6.2 percent, even with weaker consumption and consumer confidence during the period.
First of all, let me say that the Philippine economy–growing at least 6 percent for 14 consecutive quarters–suggests that we are now on a higher growth trajectory, as we in NEDA have been saying. That is why we need to focus on building capacity in physical infrastructure, human capital, and financial capital. We need to encourage the private sector to partner with government to expand production capacity and invest in innovation.
Secondly, these third-quarter numbers confirm our earlier hypothesis about the weakness of our agricultural sector that was not helped by having a highly regulated trading regime, let alone expected weather disturbances.
We are not exactly exuberant about the 6.1 percent growth rate, but still comforted that we remain one of the fastest-growing economies in Asia, next to Vietnam at 7.0 percent, China at 6.5 percent, and way ahead of Indonesia at 5.2 percent.
We are concerned about the third quarter growth numbers, not because it fell below expectations, which stood at 6.3 percent.
We are concerned about this slowdown, not because it makes the DBCC growth target for the year much more challenging.
Rather, we are concerned, because the reason for the slowdown, among others, is the slowdown in household consumption, particularly the marked slowdown in the household spending on food and other basic products.
With this, the Philippines needs to expand by at least 7.0 percent in the fourth quarter to attain the low-end of the government’s target of 6.5 to 6.9 percent growth for the whole of 2018.
On the demand side, we see robust growth in the demand of the other sectors: government, which grew 14.3 percent; demand by firms or business, growing 16.7 percent and even the rest of the world or export demand which grew 14.3 percent. In contrast, household final consumption demand grew by only 5.2 percent in Q3, from a growth of 5.9 percent in Q2. Household spending on food grew only by 2.8 percent in Q3, from 6.2 percent in Q2.
And that is exactly why the government has swiftly moved to boost consumer confidence and tame inflation. With the measures we have been pushing for, the slowdown in household spending is deemed to be abatable and temporary. But we can only do so much. We need the support of many stakeholders here, especially the legislature and the media.
Administrative Order No. 13, which was issued in September this year, streamlined administrative procedures covering the importation of food products. In October, we have seen a softening of food inflation, but it remains high. As we have been saying, the more robust solution is to reform the legal framework surrounding agricultural development and agricultural trade, especially on rice and sugar. Some of these legal and regulatory frameworks are more than four decades old–very antiquated and fossilized; they have not resulted in agricultural development and with a growing population, an advancing economy and climate change, these regulations have had adverse consequences on the economy, especially the poor members of our society.
We again urge the Philippine Congress to pass without delay the Rice Tariffication Bill, which will reduce rice prices by PhP2.00 to PhP7.00 pesos per kilo and help enhance the productivity of farmers through its tariff revenues that will be given to them to improve their performance. We also reiterate our position to be more flexible as to the agricultural development program to be funded from the tariff revenues. Conditions, as well as the needs, of the sector are bound to change. To be effective, the program needs to be responsive and flexible.
Our hypothesis about the weakness of the agriculture sector is further supported by the GDP numbers on the supply side. Our output in agriculture declined, -0.4 percent, due to the decline in the production of corn (-14.4%), palay (-5.4%), fishing (-1.1%), and cassava (-3.1%). To be fair, this could be traced to the several typhoons that dumped excessive rainfall and delayed the planting decisions of the farmers. But what this also demonstrates is the vulnerability of the sector to weather conditions, which have been the norm.
The slowdown in industry, growing by 6.2 percent in Q3 from 6.5 percent in Q2, could be attributed to the rise in the prices of raw inputs. Food manufacturing was adversely affected by the output decline in the agricultural sector, the increase in the price of sugar and tin cans. Of course, a bigger factor is the consequent slowdown in food demand by households.
We will continue to be vigilant of downside risks to growth as trade tensions mount and debt markets become tighter. Thus, we need to put into action the Philippine Export Development Plan 2018-2022, which aims to boost exports and increase competitiveness of the industry.
We are also expecting the full implementation of the Ease of Doing Business Act, which will streamline procedures and processes and encourage investors to set up business in the Philippines. This, apart from the proposed reduction of corporate income taxes and the streamlining of fiscal incentives for those who need them, as well as the liberalization of foreign participation in areas/activities through the 11th Regular Foreign Investment Negative List.
Furthermore, the services sector, which grew by 6.9 percent in the third quarter, will remain as the main driver of growth in the near term. Wholesale and retail trade and other services will primarily support the growth in the services sector, followed by real estate, renting and business activities, and public administration and defense. The recent resumption of activities in Boracay will boost services growth over the medium term.
Moreover, even as domestic demand is expected to return to high gear this fourth quarter due to the holiday season, we will continue addressing upward pressures on prices, especially on food.
We will also enhance the country’s manufacturing base to accelerate industry growth through the implementation of relevant policies such as the Inclusive Innovation Industrial Strategy and the Manufacturing Resurgence Program. This will increase the capacity and competitiveness of firms as well as strengthen their linkages into domestic and global value chains.
This administration remains committed and has the political will to reach our revised growth target for the year. We do acknowledge that this will be a tall order. Nevertheless, we work towards and anticipate sustained growth next quarter. We are determined in achieving our goals and our vision of a more inclusive growth for all where every Filipino has a matatag, maginhawa at panatag na buhay.
Thank you very much and mabuhay tayong lahat!