2nd quarter growth rates point to economic headwinds

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Research group IBON said that the recently released 2017 second quarter national accounts underscore the serious headwinds facing the Philippine economy. The group said that the Duterte administration should focus on building sustainable domestic foundations of growth and development rather than depend on external factors such as remittances, cheap labor business process outsourcing (BPO), and foreign investments.

The Philippines reported growth in gross domestic product (GDP) of 6.5% in the second quarter of 2017 which is slower than the 7.1% election-boosted growth in the same period last year. This meant slower 6.4% growth in the first semester of 2017 compared to 7.0% in the first semester of 2016.

Agricultural and manufacturing growth in the second quarter and first semester of 2017 was higher than in the equivalent periods last year. This was however not enough to off-set the marked slowdown in services which slowed to 6.1% in the second quarter (from 8.2% last year) and to 6.4% in the first semester as a whole (from 7.9% last year).

IBON noted the slowdown in overseas remittances and slackening of BPO investments. Remittance growth has been falling from its recent peak of 8.2% in 2010 to 4.4% in 2016, and was only marginally higher at 4.7% as of the end of the first semester of 2017. Data from the Philippine Economic Zone Authority (PEZA) show that PEZA-registered Information Technology-Business Process Management (IT-BPM) investments fell by almost 35% to Php7.1 billion in January-May 2017 from Php10.9 billion for the same period last year.

These slowdowns likely dampened demand for consumer goods and services and lessened private construction activity, which further decreased trade, transport, communications and finance activity. Government construction spending was also significantly slower. Overall construction growth slowed to 6.3% from 13.5% in the second quarter of 2016.

IBON said that the slowdown highlights the dependence of growth on short-term bursts of real estate and construction spending. It is however more important to create the foundations for long-term sustained growth. This means more equitable and solid rural development, beginning with real agrarian reform, and developing high value-added Filipino manufacturing with national industrialization.

IBON also noted that economic growth remains exclusionary and has done little to relieve the country’s jobs crisis and chronic poverty. Official labor statistics show that the number of employed Filipinos decreased by 393,000 to 40.3 million in April 2017 from 40.7 million in the same period last year. Meanwhile, poor quality of work persists with 15.6 million or 38.7% of employed in the informal sector or unpaid family work so far in 2017.

IBON said that the Philippine economy will stay on the path of exclusionary growth and underdevelopment should the Duterte administration still implement neoliberal market-driven policies. To arrest the long-term economic slowdown, the government must take on policies that will aggressively develop domestic agriculture and Filipino industries.

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