With its lowest growth rate in three years, the Philippine economy suddenly got analysts’ attention. The economy grew by only 5.2 percent in the first quarter of this year, having previously been one of the fastest growing in the world.
During Q1, the gross domestic product (GDP) growth of the country was lower than the 5.6 growth recorded for the same period last year. It was also a significant decline from the 6.6 percent in the fourth quarter of 2014. It is the lowest since the 3.8 percent growth recorded in 2011.
Most importantly, the sudden decline came totally unexpected. The first quarter growth figure is “lower than what the government and the market expected for the period”, said Economic Planning Secretary Arsenio Balisacan.
Public Spending Slows in the Philippines
According to Baliscan, recent decline in public construction and lack of public spending have slowed down the overall growth of the economy — government spending was 13% below the target. The drop in public construction spending was due to delays in some projects of government agencies. Growth in the private sector remains robust.
As the government’s disbursement performance for the first quarter showed an uptrend in government spending, it is hoped that Q1 will just be remembered as an outlier. “Higher government spending should fuel more activities in the private sector, which in return hopefully push economic growth in the next quarters of the year,” Balisacan said.
Further reasons to be hopeful about the next few quarters come from the latest business confidence index conducted by the country’s central bank. Next quarter’s confidence index climbed to 58.2% from 43.1% in the previous survey.
To complement the optimistic outlook from the business sector, consumer’s sentiment also improved. Balisacan believes this to be due high numbers of employed families, high job availability, expectations of stable price of commodities and the decline in oil prices.
Both the rising consumer sentiment and business confidence leave Balisacan confident that the country can still meet its full-year target of 7% to 8% as expected.
Some analysts, however, are less optimistic. Both the International Monetary Fund and the Asian Development Bank have already lowered their growth forecasts for the Philippines this year.
Nevertheless, even if the country ends up with below-target GDP growth for the whole year, the economy will still be one of the fastest growing in Asia. However, should the downward trend hold, analysts will become alarmed about the near-term prospects of the ASEAN economies.