STATEMENT OF SEC. CAYETANO W. PADERANGA JR. ON THE Q4 & FY 2011 NATIONAL INCOME ACCOUNTS
30 January 2012
NSCB, Makati City
Fourth Quarter 2011 GDP Performance
The Philippine economy grew by 3.7 percent in the fourth quarter of 2011, from 3.1 percent and 3.6 percent in the second and third quarters, respectively. On the supply side, real GDP growth in the fourth quarter was mainly propelled by the robust performance of the services sector, as well as the strong performance of the public construction subsector. On the demand side, household and government consumption, and public sector infrastructure investments supported growth. With a 2.9 percent growth in net primary income, gross national income grew by 3.5 percent.
As in the previous quarters of 2011, the fourth quarter’s economic performance was greatly affected by negative external developments, including the European debt and economic woes, the weak recovery of the U.S. economy, and the supply chain disruptions due to the flooding in Thailand. Overall, exports of goods contracted by 10.8 percent in the fourth quarter, which in turn led to a 5.5 percent contraction in total goods and services exports, the latter comprising almost 50 percent of GDP.
In addition, the country was hit by numerous typhoons that resulted in heavy damages, among others, to the country’s agriculture and infrastructure sectors. NEDA estimates that the total damages caused by typhoons Pedring, Quiel, and Sendong alone, represent about 1.54 percent of the fourth quarter’s GDP.
However, notwithstanding the negative shocks to the economy, bright spots remained. The most notable is the rapid acceleration in public construction expenditure, which grew by 49.4% in the fourth quarter, a marked reversal from the contractions in the previous three quarters. This was largely due to the government’s Disbursement Acceleration Program as well as the continuous speeding up of the implementation of various government programs and projects. The acceleration in public expenditure led to a 5.8% increase in government final consumption expenditure and a 6.3% increase in public administration and defense subsector. We expect the acceleration of public expenditures to continue well into 2012.
Overall, the 3.7 percent real GDP growth in the fourth quarter is within the NEDA’s forecast and expectations.
Consistent with NEDA’s expectations and with the October 2011 Labor Force Survey results that showed employment was mainly generated by the services sector, the main driver of the economy on the supply side was the services sector. Note that the services sector comprised more than half of GDP. The strong OF remittance inflows supported the real estate, rental and business activities subsector, while tourism contributed to the strong performance of the other services subsector. In addition, the acceleration of government’s spending has resulted in the robust performance of the public administration and defense subsector, while the expansion in loans by banks have provided support to the strong performance of the financial intermediation sector.
However, industry was beset by the challenging external environment, as the manufacturing sector registered a weak 2.2 percent growth. The government tried to counter the external headwinds by ramping up public construction expenditures by almost 50 percent. However, this was not enough to cause industry to perform as we had hoped, since the mining and quarrying, and the electricity, gas and water sectors also contracted.
Meanwhile, in agriculture, the typhoons have contributed to the 2.5 percent contraction of the sector.
The demand side was propped up by the 6.7 percent growth in household consumption, driven by continued strong inflow of remittances, improvement in the country’s labor situation, holiday spending, and the continued implementation of the conditional cash transfer program. Government consumption expenditures also increased due to the acceleration of government spending. Capital formation, on the other hand, contracted, amid negative headwinds from abroad. The heavy infrastructure investment demand by the government was not enough to counter the negative effects of the external factors on durable equipments and inventory accumulation. As already mentioned, the same negative external headwinds also caused exports to contract substantially.
Full Year 2011 GDP Performance
The full year 2011 real GDP growth of 3.7 percent is also within NEDA’s growth forecast of 3.6 to 4.0 percent. However, this is below the Development Budget Coordination Committee or DBCC growth assumption of 4.5 to 5.5 percent, used for budgeting purposes, and the Philippine Development Plan’s growth target of 7.0 percent.
Unfortunately, a myriad of external shocks has buffeted the economy since the beginning of the year, starting from the MENA crisis and the resulting high oil prices, the Japan and Thailand tragedies with their resulting supply chain disruptions, and the overall weakness of the world economy due in large part to the weaknesses in the European and U.S. economies. In addition, several typhoons (Bebeng, Juaning, Mina, Pedring, Quiel, and Sendong), flooding, and low pressure areas affected agriculture and infrastructure during the year. NEDA has estimated that the damages caused by these natural disasters represent 0.63% of GDP.
GDP growth decomposition reveals that the dismal performance of goods exports pulled down the full year 2011 GDP growth rate by 2.2 percentage points. Public construction and government consumption also had an impact.
Agriculture, industry and services sectors contributed to the full year growth. Government spending has increased significantly, with the public construction sector growing by almost 50 percent in the fourth quarter of 2011 over the same period in 2010, while government consumption expenditure and public administration and defense figures have been showing substantial increases since the second or the third quarter.
Outlook for 2012
We expect that this acceleration of public expenditures will continue well into 2012 and beyond. The hard work of reforming government processes and plugging expenditure leaks has been done. We can now spend every taxpayer peso with full efficiency and high impact on the economy. In addition, we expect substantial acceleration of disbursements, including those for infrastructure and capital outlay, in the coming months.
Thus, investment is expected to post a strong growth in 2012 despite the global economic uncertainties, as we anticipate strong investments from both public and private sectors. Public construction will significantly contribute to growth in 2012. As of January 12, 2012, the government has already released 72.1 percent or P150.2 billion of the P208.3-billion allocation for capital outlays for various infrastructure projects of different agencies like Department of Public Works and Highways, Department of Education and Department of Agriculture. The construction sector will get a boost from public construction in 2012 due to continued spending for the government’s Disbursement Acceleration Program’s projects that were carried over from the previous year, and from the faster budget execution process of government. Construction will also get a boost from the acceleration of the implementation of the Private-Public Partnership program this year.
In addition, we expect that private construction will remain robust, particularly in the property sector, given the upward momentum in the office sector, and the relatively high BPO office demand in strategic areas across the country. We also expect the residential sector to remain supported by the demand from families of overseas Filipinos. We also expect expansion of investments in energy; mining; low-cost housing and office buildings; and the industries in the priority areas – agribusiness, consumer durables, information technology (IT), health and wellness, transport, telecommunications, and especially tourism to contribute positively to the country’s economic growth in 2012.
The performance of the real estate sector will be complemented by the continued robust performance of the business process outsourcing industries. Meanwhile, the performance of the other services sector will benefit from the surge in tourism as we improve our infrastructure, intensify our tourism marketing campaigns, and maintain a favorable peace and order situation.
Food manufacturing will benefit from stronger consumer demand spurred by government spending, softening prices of raw materials, and better weather conditions. In the second half of 2012, the manufacturing sector is expected to post a remarkable growth as the food sector further expands, election spending provides an impetus up to the national and local elections in 2013, and the electronic industry registers higher growth.
On the expenditure-side, the resilient domestic economy will support a continued expansion in household consumption expenditure. Household consumption will be spurred by the continued tripartite efforts of the government, private employers and workers to improve the country’s labor and employment situation; a sustained inflow of overseas Filipinos remittances which has been counter-cyclical in the past; and the implementation of social protection programs.
While NEDA is optimistic that 2012 will be substantially better than 2011, we remain vigilant and continue to closely monitor external developments that continue to pose significant risk to the country’s growth.
As many analysts expect, global economic recovery might stall in 2012 mainly due to the growing concerns over Europe. The International Monetary Fund projects the Euro area will suffer a mild recession due to lingering concerns on how to appropriately and quickly restore confidence in the economy in order to support growth while at the same time addressing fiscal imbalance and providing more liquidity and monetary accommodation. Similarly, we are also watching closely developments in the U.S. economy, whether the recovery will gain momentum or will remain fragile. Likewise, we recognize the risk that China could slow down or even experience a “hard landing,” so we are closely monitoring the overall global situation.
Overall, we expect the economy will be able to gain its momentum this year. We will pursue programs and projects designed to improve our resilience to typhoons, disasters, and climate change. We will continue our assiduous efforts to diversify our exports base, both in terms of products and countries. The government is prepared to hurdle further challenges with the support of all sectors. Government agencies are working closely in crafting innovative strategies, not only by ensuring the rapid acceleration of government spending, but also through the implementation of the appropriate policies, as spelled out in the Philippine Development Plan 2011-2016, in order to steer our country towards the path of inclusive growth.
Thank you very much, and Magandang Umaga po sa inyong lahat.
