THE PHILIPPINE ECONOMY expanded 6.1% in the fourth quarter at a pace slower than expectations, even as it remained above the six-percent mark, the Philippine Statistics Authority reported yesterday.
The October-December outcome was higher than the previous quarter’s revised 6%, but slower than the 6.5% growth recorded a year earlier.
This brought the full-year gross domestic product (GDP) growth print to 6.2%, missing the 6.3% median estimate in a BusinessWorld poll last week. Likewise, it missed the downward-revised 6.5%-6.9% growth target of the government for 2018.

The country’s GDP growth for 2018 indicated a “steady performance” as this marked the seventh straight year that the Philippine economy grew by at least 6%, according to a joint statement by the government’s economic team as delivered by Socioeconomic Planning Secretary Ernesto M. Pernia.
The fourth quarter estimate likewise extended the economy’s streak of at least six-percent growth to 15 straight quarters.
“This is a firm finish that cements the Philippines’ standing as one of the fastest-growing economies in Asia. We are next to India, Vietnam, and China. From [the first quarter to third quarter] of 2018, we overtook Indonesia and Thailand in terms of economic performance,” the statement read.
The statement also noted the economy being “in a higher trajectory” as it is growing at an average of 6.5% in the first ten quarters of the Duterte administration.
On the supply side, the industry sector grew by 6.9%, slower than the 7% recorded in the same period last year. For 2018, it grew by 6.8% versus 2017’s 7.2%.
Among its subsectors, construction posted the highest growth in the fourth quarter at 21.3%, the fastest since the first quarter of 2013. For the quarter, construction contributed 3.8 percentage points to the industry sector’s growth.
“That’s a good indicator of the continuing driving force of the Build Build Build program,” said Mr. Pernia, referring to the government’s initiative to ramp up infrastructure spending.
On the other hand, Mr. Pernia noted manufacturing as “an area of concern” with the sector growing by 3.2%, slower than the 7.9% during the same period in 2017. In the joint statement, it cited “weak business sentiment and policy uncertainties” along with lethargic demand amid a slowing global economy as the causes of manufacturing’s underperformance.
The 3.2% manufacturing growth in the fourth quarter was the weakest since the third quarter of 2011 when it registered 2% growth, according to the government’s national accounts.
Agriculture, hunting, forestry and fishing grew 1.7% in the fourth quarter versus the fourth quarter 2017’s 2.4%. For the year, it grew 0.8% compared to 4% in 2017.
The service sector also grew slower by 6.3% in the fourth quarter of 2018 compared to 6.9% in the fourth quarter of 2017. This brings the sector’s full-year growth at 6.6%, decelerating from 2017’s 6.8%.
On the expenditure side, government spending recorded an 11.9% growth in the fourth quarter, albeit decelerating from 12.2% in the same period in 2017. However, its 12.8% growth in 2018 was faster than 7% in 2017.
Meanwhile, gross national income (GNI) — the sum of the nation’s GDP and net primary income (NPI) from the rest of the world — registered a growth of 5.2% in the last quarter of 2018 from 6.1% in 2017’s comparable three months. For 2018, it grew 5.8% against 2017’s 6.6%.
TRADE, INFLATION
In a text message to reporters, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said the slower-than-expected fourth-quarter GDP growth was due to the performance of the external trade in goods and services with import growth continuing to outpace exports.
“Limiting the reckoning to domestic demand of consumption, investment and public spending, the economy could have grown by more than [ten] percent,” Mr. Guinigundo said.
“For the entire year of 2018, consumption somewhat slowed down because of price pressures even as public spending proved a strong driver of economic growth,” he added.
Meanwhile, ANZ Research senior strategist Irene Cheung and junior economist Mustafa Arif concurred in a note: “The moderation in full-year growth reflects a larger drag from net exports rather than weaker domestic demand.”
“That said, [fourth quarter] data may represent a turning point given the moderation in domestic demand. It is possible that investment growth has slowed due to the lagged impact of monetary tightening.”
Emilio S. Neri, Jr., lead economist at the Bank of the Philippine Islands, said in the lender’s latest global markets commentary that “[a]lthough [fourth quarter] growth was below expectations, the latest print still shows the strength of the Philippine economy and its ability to grow by at least six percent despite the economic challenges.”
Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc., pointed to the “almost runaway inflation” last year as the main culprit.
“High price levels, even as it has started to taper down last November, managed to negatively impact domestic demand. The monetary policy response to heightened inflation through higher interest rates also affected business and investment activities with higher borrowing costs,” he said.
“Local interest rates, especially long-term tenors, also reached decade-highs on Oct. 22, so there is still residual effects of high local interest rates in terms of slowing down loan growth as well as overall economic growth,” Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC), said.
OUTLOOK
“For the year ahead, we expect household consumption to recover as inflationary pressures subside given a subdued outlook on international oil prices and the expected reduction in rice prices from the enactment of the Rice Tariffication Law,” Mr. Pernia said, referring to the proposed measure that will replace the current system for importing rice via government procurement.
If passed, the new import arrangements will be opened up to private parties, while inbound shipments will be subject to tariffs to protect local farmers. The tariff revenues would then be given to these farmers in order to increase their productivity.
Mr. Pernia also noted the impact of the re-enactment of the 2018 budget on government spending in the near term. “This implies that the government would not be able to quickly execute programs and projects under the proposed 2019 budget. The 45-day ban on state spending prior to the May 2019 elections could also further delay implementation of infrastructure projects,” he said.
Nevertheless, the 2019 midterm elections, the preparations leading to the Southeast Asian Games in November, and the creation of the Bangsamoro Autonomous Region are seen to be “[potential growth drivers” this year.
BSP’s Mr. Guinigundo was of the same assessment: “We expect that domestic demand will recover and strengthen in 2019 with price pressures held on a tight leash [and] public spending being sustained despite the delay in the passage of the national budget and… [that] investment should receive some boost with inflation coming down.”
The 2019 budget was not ratified by the Senate and the House of Representatives before the end of 2018, which automatically reenacts the 2018 budget — meaning no new projects or programs can be funded.
“SUBDUED GROWTH”
Analysts see steady but subdued growth this year, with the economy expected to be buoyed by household consumption, easing inflation, and improved external despite headwinds like slower government spending due to the delay in the passage of the national budget.
ING Bank N.V. Manila senior economist Nicholas Antonio T. Mapa said this year will likely be a “tale of two halves,” with the first half seeing “relatively subdued growth” due to the national budget delay with government expenditures “likely put off” to the second half of 2019.
“Furthermore, knock off effects from the BSP’s aggressive 175-[basis point] rate hike in 2018 are seen to continue to feed into the economy and sap investment momentum. Meanwhile, household consumption will likely be revived as inflation decelerates further to slide back within target as early as 2Q 2019,” he said.
Mr. Mapa added that with inflation slowing, the BSP “will likely unload a string of easing measures to help buttress growth closer to the administration’s growth target of 7-8%,” such as cutting banks’ reserve requirements, as well as a policy rate cut after last year’s series of hikes.
Meanwhile, Standard Chartered Bank economist Chidu Narayanan said growth is expected to “pick up moderately” to 6.4% in 2019. “Domestic consumption is still likely to remain the biggest growth driver in 2019, while infrastructure investment, both public and private, is likely to support growth,” he said.
RCBC’s Mr. Ricafort said GDP growth “would likely be faster” in the first quarter of 2019 amid easing inflation, lower domestic interest rates, higher public sector spending and lower base effects.
“With inflation now in a downtrend, the economy has the opportunity to return to the sweet spot of low inflation and high growth just as election spending boosts overall demand. We note that growth during election years is usually faster compared to the growth in non-election years,” BPI’s Mr. Neri said. — Lourdes O. Pilar with inputs from Melissa Luz T. Lopez