Press Conference on the Q1 2014 Performance of the Philippine Economy

Members of the media, my colleagues in government, ladies and gentlemen, good morning.

The Philippine economy grew by 5.7 percent in the first quarter of 2014, even as we continued to feel the lingering effects of the disasters that hit the country during the last quarter of 2013.  Despite this, the Philippines is the third fastest growing among the major economies in Asia in this period, next only to China with 7.4 percent and Malaysia with 6.2 percent.

The relatively slow growth is expected, given the magnitude of the destruction in production capacity. In agriculture, permanent crops, notably coconuts, were felled.  Damage to agricultural output also disrupted supply chains, which may partly explain why food manufacturing output also declined. The tourism and insurance industries likewise slowed down in the first quarter as they are still reeling from the impact of natural calamities last year.

Apart from the disasters, prudential lending measures imposed beginning in the previous quarter to prevent the formation of “real estate bubbles” have also contributed to the slowdown. Private construction was particularly affected by such measures.

Nevertheless, Information Technology-Business Process Management (IT-BPM) and the export-oriented manufacturing remained resilient. Post-disaster recovery and reconstruction efforts have also induced growth in logistics, transport, and social work. 

Growth drivers         

Overall, on the supply side, the services and industry sectors primarily drove the growth with a contribution of 3.8 and 1.8 percentage points (ppts), respectively, to real GDP growth. Manufacturing remained as the main driver of growth for the industry sector, followed by mining and quarrying. However, agriculture is yet to recover from the devastating effects of last year’s typhoons. All subsectors posted lackluster growth, except forestry, with the contraction in fisheries dragging the sector’s overall performance. Meanwhile, the services sector’s growth was primarily driven by the gross value added in communication, land transportation, and storage and services incidental to transport.

On the demand side, private consumption, fixed capital formation and net exports respectively contributed 4.0 ppts, 2.6 ppts, and 1.8 ppts, to the growth. Household spending remained strong in the first quarter of 2014 despite the higher inflation recorded during the period at 4.1 percent. The impact of a higher inflation was partly moderated by the weakening of the peso as the value of overseas Filipino remittances during the period.

Meanwhile, public construction grew by 22.3 percent due to various projects of the DPWH, DOTC, DOH, and the ARMM. However, this growth was countered by the 6.0 percent decline in private construction as reports noted a decline in mid-income housing, high rise residential, and commercial condominium. Also, the Bangko Sentral ng Pilipinas implemented stricter monitoring of banks’ exposure to the real estate sector which now requires them to report investments in debt and equity that finance real estate activities.

Despite all of these, the Philippine external market is a bright spot in the growth of the economy during the period. The country is now benefiting from the sustained growth in the global manufacturing industry. Total exports grew double digit this quarter, a rebound from the 10.6 percent contraction in the same period in 2013. Imports, notably of raw materials and intermediate goods, also improved to 8.0 percent from a 2.8 percent growth last year.  

Next steps

Growth in the first quarter of 2014 indicates that the economy will continue to grow at an increasing pace in the succeeding three quarters. The growth momentum will likely strengthen within the near-term, notwithstanding the risk and challenges that the economy is facing. We remain confident that we will meet the growth target of 6.5 to 7.5 percent for the full year of 2014.

Given recent performance, it is clear that the country needs to diversify the economy, develop resiliency, and maximize benefits from the improving global economy.

It is important to get the growth trajectory, including the reform agenda, back on track as the optimism in the domestic economy is sustained. The timely implementation of the strategies in the Updated Philippine Development Plan will definitely give a boost to growth prospects. In the near term, the growing energy requirements of the economy need to be managed to avert a power crisis. With additional capacity forthcoming only in 2015, higher energy prices are expected until such time and so measures to cushion the impact on households and businesses should be put in place, keeping in mind, however, that the more costly alternative is having no power at all.  Also, we see the urgency of speeding up the reconstruction and rehabilitation efforts in the disaster-stricken areas. Reconstruction efforts will rebuild assets and restore supply chains.  At the same time, we need to strengthen the capacity of people, families and communities to participate in the growth process once again.

Obviously, this will require a lot more from us, workers in government. This afternoon, the President will chair a NEDA Board meeting, to be attended by members of the Cabinet, to deliberate on a number of projects and, concerning each one, ascertain whether or not it yields net benefits to society. Tomorrow early morning, I and other colleagues in the Cabinet will fly out to Cebu to meet with local government officials in the Yolanda-affected areas to finalize their respective reconstruction and recovery plans. And that is how it is going to be. I urge our people, the business community, civil society, and development partners to do the same. Working together, this will not be an insurmountable task.

Thank you for your attention and I wish you all a pleasant day.