PRESS CONFERENCE ON THE FOURTH QUARTER AND ANNUAL PERFORMANCE OF THE PHILIPPINE ECONOMY IN 2013

STATEMENT

SECRETARY ARSENIO M. BALISACAN

30 January 2014, NSCB Office, Makati City

Economic Planning Secretary and NEDA Director-General

I am pleased to share with you that the Philippine economy grew by 6.5 percent in the fourth quarter of 2013, placing the full year Gross Domestic Product (GDP) growth to 7.2 percent.

This is a remarkable turnout: the economy grew better than our expected target of 6.0 to 7.0 percent for 2013  despite the challenges we faced during the year, particularly the disasters that struck Central and Southern Philippines in the fourth quarter.

Indeed, growth could have been better, had we not been perturbed by various disasters that hit the country such as the Bohol earthquake, the Zamboanga siege and Typhoon Yolanda.

Nonetheless, the Philippines remains as one of the best performing economies in the Asian region in the fourth quarter of 2013, second only to China, which grew by 7.7 percent.

The growth drivers

On the supply side, the services and industry sectors continue to be the drivers of economic growth.

The services sector contributed 3.6 percentage points of the real GDP growth in the fourth quarter of 2013. This was followed by the industry sector with 2.8 percentage  points and agriculture with 0.1 percentage point. Fourth-quarter growth on the supply side was mainly propelled by manufacturing, trade, finance, and real estate. 

The 6.5 percent expansion of the services sector was driven largely by the strong demand for communications, land and air transportation, and storage and services incidental to transport. Increased air traffic in Q4 2013 was due to the additional flights and destination of the country’s  leading airlines, and number of passengers and cargo for tourism and for relief operations after super typhoon Yolanda.

The financial sector also came in strong in Q4 2013 with a growth of 9.9 percent. A stable business environment, a manageable inflation rate of 3.7 percent – leaning towards the low end of the target range — and low interest rates, as well as aid from other countries for those affected by typhoon Yolanda, have induced an increase in financial activity.

The 5.4 percent growth in other services, meanwhile, was mainly driven by education and services, health and social work, and community services. This reflects the increased response to the devastation left by typhoon Yolanda, as well as increased efforts of TESDA to provide short courses and training on skills that are much needed locally and abroad. Likewise, tourism has been driving the sector’s performance. For 2013, tourism gross value added reached 748.3 billion pesos, 15 percent higher than in 2012.

In the industry sector, manufacturing served as the frontrunner, posting double-digit growth of 12.3 percent in the fourth quarter of 2013. This is more than twice the growth it exhibited in the same period of 2012, at 5.5 percent. The top performer was chemical and chemical products which grew at triple digit, 124.5 percent in the fourth quarter following another triple digit growth of 133.5 percent in the third quarter. For the full year 2013, manufacturing grew significantly by 10.5 percent, maintaining a growth rate of above 9.5 percent since the first quarter of 2013. Manufacturing continues to get a boost from related sectors and a growing export demand.

On the demand side, growth was driven by household consumption, which contributed 4.2 percentage points, and net exports, which contributed 1.6 percentage points.

The 5.6 percent growth in household spending was slower than the 6.2 percent growth recorded in the same period last year. This may be attributed to the increase in consumer prices in the fourth quarter of 2013 which was due to the supply shocks caused by the natural calamities that hit the country in the latter part of the year, in addition to the expected higher food prices due to the holiday season.

The export sector continued to post a positive growth in the fourth quarter of the year at 6.4 percent, lower than the 8.6 percent in the previous year, but still a sign of improvement after its lackluster performance in the first half of 2013. Merchandise exports increased by 6.2 percent mainly due to the strengthening of the global manufacturing sector in line with the recovery of the world economy.

Exports of services, on the other hand, grew by 7.0 percent from a negative 0.6 percent growth in the same period last year. For 2013, the expansion of business process outsourcing (BPO) firms and the influx of tourist arrivals in the country were the main sources of growth for this expenditure account.

The challenges

While notable gains have been made, declines or deceleration of growth in some sectors tamed overall growth for 2013. 

Construction had the biggest setback in the fourth quarter. The subsector contracted by 0.8 percent due to stricter rules imposed on real estate lending in compliance with prudential regulations. The Board of Investments has also tightened mass housing incentives.  The rule requiring developers to allot 20 percent of their total housing investment for low-cost mass housing units is now being closely monitored and enforced.

Government spending also declined by 5.2 percent, down from the 9.5 percent growth recorded in the fourth quarter of 2012 due to lower disbursements in Personnel Services (PS) and Maintenance and Other Operating Expenditures. For the full year, however, government spending increased by 8.6 percent. Expenditures may have been frontloaded, as government agencies adjusted to the one-year validity of the budget.

Due to deceleration of both imports of goods and imports of services, total imports slowed down by 1.9 percent during the last quarter from 8.0 percent in the same period of the previous year.

Outlook for 2014

Overall, however, the fourth quarter and full-year 2013 real GDP growth has surpassed the expectations of both the public and private sectors.

It will take some time for establishments in typhoon-affected areas to recover assets and regain momentum and this is expected to affect the growth in the first quarter of 2014. But we are optimistic that the Philippine economy will remain strong in 2014, especially that the outlook on the global economy is becoming more favorable and as the domestic economy remains robust.

The International Monetary Fund and the World Bank both have higher growth expectations for the global economy. The IMF sees global activity growing by 3.7 percent in 2014 and 3.9 percent in 2015, while the World Bank projects global economic growth at 3.2 percent in 2014 and 3.4 percent in 2015. Similarly, the Asian Development Bank sees the region growing at 6.2 percent in 2014.

With such indications of recovery from the global economic crisis, we believe the Philippine economy, particularly the industry sector, is in a very good position to take advantage of wider export markets, as the government continues to implement reforms to reduce the cost of doing business in the country. 

Agriculture and industry sectors are expected to be vibrant this year, as the government promotes linkages between the two sectors to increase value added as a key strategy identified in the Philippine Development Plan midterm update.

The construction of major infrastructure projects, particularly in the transport sector, is expected to add fuel to the growth this year and beyond.

Notwithstanding this vibrant outlook, we remain keen on the domestic and external challenges that the economy is facing. We are also aware that growth remains uneven, as some areas have higher growth potentials than others. The strategies in the updated PDP take cognizance of the spatial dimensions of development in our pursuit of poverty reduction.

Importantly, we know, too,  that the country is very prone to natural disasters, particularly typhoons, earthquakes, and volcanic eruptions that significantly damage and disrupt economic activity. In 2013, the combined impact of typhoons and other natural disasters that hit the country may have reduced the full-year real GDP growth by at least 0.1 percentage point (ppt). This is why the government has strengthened its strategies to improve disaster resilience.

Moving ahead, we will continue to be on the lookout for opportunities and remain watchful of threats to be able to sustain our growth momentum.

Thank you and good morning.

January 30, 2014