GDP growth slows to 4.1%

The Philippine economy slowed sharply in the third quarter due to high oil prices, a sluggish agriculture performance and political turmoil surrounding President Arroyo, economic planning officials reported yesterday.

The outcome of 4.1 percent for the three months to September was well below private sector forecasts for gross domestic product (GDP) growth of 4.3 to five percent and the 6.2 percent registered a year earlier.

Socioeconomic Planning Secretary and National Economic and Development Authority (NEDA) Director General Augusto Santos said the latest figures meant it would be very unlikely the government would now hit its 5.3 percent GDP growth target for 2005, a view shared by economists.

"It is quite clear that the government growth target will be missed," said Christy Tan, an economist at Bank of America in Singapore. "There is no need for the government to do quick-fixes like increase spending to spur the economy. What the economy needs are long-term investment and continuing fiscal reforms to sustain growth."

Growth in the second quarter came in at 6.2 percent, at 4.7 percent for the six months to June, and 4.6 percent in the nine-month period.

Officials said the slowdown reflected a poor performance in agriculture, record oil prices and the political turmoil stemming from opposition efforts to impeach Mrs. Arroyo on charges she cheated to win the 2004 elections.

"The political uncertainty brought about by the impeachment case and the volatility of oil prices weighed on the country," Santos said.

"What we are seeing now is that consumption is getting hit by higher oil prices and the political fallout," said Luz Lorenzo, an economist at ATR-Kim Eng Capital Partners Inc. "This is a reflection of the pessimism that prevailed during the quarter because of the political situation."

"The burden of the political fiasco and higher oil prices was greatly felt in the third quarter," added Jose Vistan, an economist at AB Capital Securities. "Consumption, investments and production fell because of that."

Agriculture, which was hit by a prolonged drought in the first half, managed only a 1.8- percent expansion in the third quarter, crimping overall growth.

Services led the way with growth of 5.1 percent, followed by industry, which rose 3.9 percent, NEDA officials told a news conference.

Mrs. Arroyo has been counting on agriculture to stage a rebound in the second half to ensure the economy grows 5.9 percent in the last six months of the year and so achieve the 2005 growth target of 5.3 percent.

However, the drought, especially bad in south, stretched well into the third quarter while farmers in other parts of the country were hit by storms and pests, the officials said.

Despite the slowdown, Santos said he is confident the economy would rebound in the fourth quarter based on recent positive indicators such as tourist arrivals, power consumption and trade data as well as the recent strong performance of the stock market.

Traditionally the economy posts its strongest growth in the fourth quarter.

"Remittances, which have been growing by 38 percent quarter-on-quarter, and employment by 60 percent will help boost the last quarter performance," Santos said.

Remittances are expected to hit the $10 billion mark this year after a record $8.6 billion last year.

Although President Arroyo’s allies in Congress quashed an impeachment bid against her in September, the opposition is continuing in its efforts to unseat her, calling for numerous probes into the executive department.

"The political turmoil is causing some uncertainty for investment decisions," Santos conceded.

Private sector economists said the Philippines is now likely to see full-year growth of well below 5.0 percent but that might be more sustainable than the higher levels targetted.

"I’m looking at full-year GDP growth of 4.3-4.5 percent given that the loans market is very soft and manufacturing is taking a backseat," said Emma Pante, economist and corporate information officer at Rizal Commercial Banking Corp.

"But this is more sustainable and better than the boom-bust syndrome that we experienced a few years ago," she said. In 2004, the economy grew 6.1 percent.

Economists also noted that the third quarter is usually quiet, as people save up for the year-end holidays and wait for all important remittances from Filipino overseas workers (OFWs) which really give a boost to activity.

Significantly, gross national product (GNP), which does include the remittances, grew 6.5 percent in the third quarter after 5.7 percent a year earlier and was up 5.4 percent for the nine-month period.

The reaction on the market was muted, with the Philippine Stock Exchange composite index little changed.

"Investors were thinking that the GDP report could be a catalyst for another market rally but it turned out the figures were disappointing," said Ron Rodrigo of Accord Capital Equities. – AFP