Economic Performance in the Philippines
The economy in the Philippines
GDP growth accelerated to 7.3% in the first half of 2007
from 5.6% in the first half of 2006. The sharp rise was due to robust growth of net exports and private consumption, and higher government expenditure. Private consumption, accounting for more than three quarters of GDP, grew by 6.0% in the period, underpinned by an 18.1% rise (to $7.0 billion) in remittances from overseas workers. Government consumption rose by a sharp 11.8% and public sector construction investment surged by 33.8%. Both were boosted by some nonrecurring factors: recovery expenditures for typhoon-damaged areas and accelerated spending ahead of legislative & local government elections in May 2007.
GDP had risen by 5.4% in 2006, maintaining its slight upward trend of the past 5 years (see attached figure for GDP growth). Personal consumption expenditures and net exports were the main contributors in 2006. The substantial remittances and low interest rates supported private consumption.
However, gross fixed capital formation continued to decline as a share of GDP to the lowest level in 20 years 3 (refer to attached figure for Gross fixed capital formation), reflecting a deficient investment environment and restraints on the public capital spending required to buttress the Government’s fiscal position.
On the supply side, services recorded particularly strong growth of 8.6%. Retail trade, a major sub-sector, expanded by 10.5% on the robust private consumption. Industry grew by 7.2%: construction and mining performed well, manufacturing less so (See attached figure for growth of industry sub-sectors). Construction was strongly supported by the jump in public sector investment. Private sector construction also grew, by 8.5%, a turnaround from a decline in the year earlier period.
Mining output (up by 24.3% in the first half) benefited from high global prices for minerals and startups of new projects. Production of coal, natural gas, and nickel increased, although from low bases. Quarrying surged with the higher levels of construction activity. Manufacturing grew by just 3.9% in the first half, the lowest rate of expansion in several years, in part because of weakness in global demand for electronic products, a major export category.
The outlook for the full year has improved with the stronger than expected first-half performance and lower than projected inflation. Private consumption spending will continue to be boosted by remittances. On the other hand, with elections out of the way, government spending is unlikely to be as strong in the second half. The contribution of net exports is projected to decline, too, because imports were unusually weak in the first half. Still, taking into account the higher than expected private consumption and government-led investment, the GDP forecast for this year has been revised up to 6.6% from 5.4% by various organizations monitoring economic activity in the region especially the Philippines.