MANILA: Philippine economic growth slowed to 5.5 percent in the three months to June, its slowest pace in more than four years, as trade wars took their toll, the government said on Thursday (Aug 8).
“As we have anticipated, these have been challenging times,” Economic Planning Secretary Ernesto Pernia said, blaming rising protectionism in advanced economies, as well as the El Nino dry spell that saw grain production contract.
The 5.5 per cent expansion was the country’s lowest through 17 quarters.
GDP growth in the first three months of the year was also at a lower-than-expected 5.6 per cent, making it more challenging for Manila to attain its full-year target of 6 per cent to 7 per cent.
The central bank’s policy-setting board responded Thursday by trimming its key overnight reverse repurchase facility by 25 basis points – its second this year – to 4.25 per cent, and signalling it was ready to cut further.
“The Monetary Board believes that the benign inflation outlook provides room for a further reduction in the policy rate as a pre-emptive move against the risks associated with weakening global growth,” it said.
With China and the United States, two of the Philippines’ top trading partners, locked in an escalating trade war since the second half of 2018, Manila’s total exports last year shrank by 1.8 per cent to US$67.5 billion.
First World protectionism was also “moderating” the performance of Manila’s key information technology and business process management sector that serves mainly Western companies and employs millions, Pernia said.
Growth in services exports, driven by the business process outsourcing sector, eased to 3.8 per cent, the Philippine Statistics Authority said, compared to a 9.7 per cent expansion in the same period last year and double-digit annual growth as late as in 2016.
Meanwhile growth in goods exports slumped to 4.6 per cent in the quarter, from 16.1 per cent a year earlier.
“It is essential for the country to diversify its products and markets,” Pernia said, also calling for a push in tourism, which has been “largely insulated from the trade wars and other tensions that we have been witnessing”.
While the El Nino effect on the Philippines was relatively mild this year, Pernia said it had a “severe” impact on water supply in the capital Manila, where taps ran dry as water impounded in dams shrank.
“This adversely affected consumer confidence, resulting in a slowdown in household consumption,” he said.
A ban on public works activities ahead of last May’s midterm elections, and a delay in the passage of this year’s government budget, had also squeezed government consumption, particularly in construction, he added.