Surging Inflation Mars Philippines Growth

The Philippine economy in 2018 is a story that can be summed up in a few words: Surging inflation is marring growth.

The gross domestic product expanded by a disappointing 6% in the second quarter from a revised 6.6% in the first three months of 2018. The second-quarter figure brought the first-semester growth average to 6.3%, or below the lower limit of the target range of 7% to 8% for the year, PNA reported.

Despite the setback, the economic managers of President Rodrigo Duterte remain optimistic the GDP growth target range this year is doable amid the external headwinds that may stifle expansion, like rising interest rates in advanced economies, increasing trade protectionism and the pesky inflation rate.

The department of finance has shrugged off the sluggish 6% GDP expansion in the second quarter. It said “strong macroeconomic fundamentals backed by tax reforms and the ambitious P8.4-trillion ($1.57 trillion) ‘Build, Build, Build’ infrastructure projects would continue to boost economic growth as the competitiveness of the economy rises and more jobs are created.”

The DoF said the fiscal space expanded by the implementation of the Tax Reform for Acceleration and Inclusion and tax administration enabled the government to boost investments and growth in the first semester.

“In the first semester, the government outlays expanded by 42.4% in nominal terms, boosting GDP growth by almost a percentage point while government current expenditures rose by 26.6%, contributing an incremental 1.16 percentage points to growth,” the DoF said.

Economic planning secretary and national economic and development authority director-general, Ernesto Pernia, attributed the slower-than-expected economic performance in the second quarter to higher inflation rate, trade imbalance, “stagnant” agriculture sector, and the closures of the island resort of Boracay last June and some mining operations during the time of former environment secretary Regina Lopez, a staunch environment advocate.

President Rodrigo Duterte temporarily closed Boracay to rehabilitate the island resort and prevent its further degradation due to too much commercialization that has been taking its toll on the island resort.

But Pernia expressed optimism the reopening of Boracay sometime in October this year could again lure many tourists and eventually contribute significantly to economic growth in the last quarter.

  Robust Infra Spending

Finance Secretary Carlos Dominguez III said national government spending on infrastructure reached P281 billion in the first five months of 2018, up 42% over the same period last year. The expenses are on top of the private sector construction and public sector projects financed through public-private partnerships.

Dominguez said with P281 billion invested on infrastructure in the first five months, the government was averaging close to P56 billion a month in funding” Build, Build, Build.”

Moreover, with 30% of the spending going to wages, about P17 billion was infused into the economy per month in the form of additional income and purchasing power for workers, aside from creating some 100,000 new jobs so far, spurring economic activity in related sectors and other multiplier effects, he said.

“Build, Build, Build will drastically alter the Philippine economic landscape. It will create over a million jobs per year. It will bring our logistics backbone up to par in a region that is growing very dynamically,” Dominguez said.