Is PH’s 6.4% economic growth sustainable?
The better-than-expected growth is a pleasant "surprise" to many. How the government will sustain it remains to be seen

STRONG GROWTH. The Aquino government posted its second highest quarterly growth since it took over in 2010. Data from

MANILA, Philippines – The Philippines’ higher-than-expected 6.4% economic growth in the first quarter despite uncertainties abroad was a pleasant surprise to many. But is it sustainable?

The economic performance was the best in Southeast Asia for the period. It was the highest quarterly growth recorded in a non-election year since 2006, and the second-highest for the Aquino administration.

It was driven mainly by a strong services sector, which got a boost from the arrival of tourists, who spent money for transportation, communication, hotel, leisure and relaxation such as spa and other personal services, the government said.

Coming from a low 3.9% overall growth last year and amid the sluggish global growth, 6.4% was a high figure for most.

Whether or not the Philippines can sustain it, economists, analysts and market players have mixed views.

Some say that even if the government assures the public it will do everything to keep the momentum up, the wave of the crisis in Europe will hit the Philippines through trade and investments. Perceived economic “sanctions” imposed by China due a territorial dispute with the Philippines are also expected to have an impact on the local economy.

However, some believe such threats will be offset by domestic factors such as increased government spending and strong business and consumer sentiments.

Most say meanwhile that the government’s Public-Private Partnership (PPP) program will play a vital role in stirring up economic activity.

Global, euro crises

“The first-quarter GDP numbers exceeded most expectations. If the numbers are true, how come many Filipinos are jobless, poorer, and hungrier?” asked former Budget Secretary Benjamin Diokno, an economics professor of the University of the Philippines.

Diokno said it will be difficult to sustain the level of growth given the fact that the global market is shrinking and volatile at this time.

He noted that public construction, which grew 62.2% in the first quarter and was one of the growth drivers, has not really recovered. With public construction contracting 37.9% last year, Diokno said the first-quarter growth was only due to base effects.

More worrisome is the fact that private construction “stalled” in the first three months. “Private construction accounts for about 3/4 of total construction,” Diokno said.

For his part, former Philippine Economic Society President Fernando Aldaba said “sustainability is a question because of the uncertainties in Europe and the global economy.”

These external problems have weakened demand for the country’s exports, which fell during most of 2011. Exports recovered in January and February this year, but fell again in March. They are expected to continue falling in the coming months as their raw materials — imports — were also down in March.

Aldaba said the 6.4% growth in first quarter was a “surprise” since he was expecting growth of only around 5%.

Meanwhile, the sea spat with China, the Philippines’ 3rd largest trading partner and 4th biggest source of tourists, is also a threat to growth. 

China issued a travel advisory warning its citizens against traveling to the Philippines. It also barred several shipments of Philippine fruits from leaving its ports.

Spending, tourism

But another economist, Victor Abola of the University of Asia and the Pacific, is optimistic. He sees little impact from the euro zone crisis. He said if the crisis worsens and spreads, it will only shave off half a percent from economic growth.

He said he also expects the government to rollout various infrastructure projects in the first half. He noted that while low-base effects lifted construction in the first quarter, infrastructure spending was also frontloaded.

“A growth of 5% would easily be attainable in the coming quarters. We project full-year growth at 5.5%. The government’s target of attaining a growth of 5-6% is quite attainable and exceeding it is possible,” Abola said.  

Dennis Arroyo, a former National Economic and Development Authority (NEDA) director who is now a consultant for multilateral institutions, said that despite the euro crisis and the Philippines’ strained relationship with China, full-year growth of 6% is possible.

“Driving it will be strong business confidence, improvements in public spending, the rise in tourism, and some pick-up in the US economy as seen in signs of an uptick in the housing market.”


After releasing the first-quarter growth data, NEDA Director-General and Socioeconomic Planning Secretary Arsenio Balisacan predicted the government may exceed its 5-6% growth target this year. “We want to keep the momentum going to meet 7-8%.”

He said they are banking on the rollout of infrastructure projects under the PPP to fuel the economy.

“Government will not let up in its efforts to accelerate growth. There is room for faster government spending.”

Diokno agreed that the government must fast track infrastructure investments. “The government has to step up its PPP projects and the implementation of its infrastructure program.”

A total of 22 projects have been identified under the PPP so far. However, since the government announced the program to investors in 2010, only one — the Daanghari South Luzon Expressway road — has been awarded.

There were delays in the projects as the government took time to screen the contracts to get rid of corruption, explained the Public Works and Highways department. 

Government underspending due to these delays, together with the decline in exports, were mainly blamed for the drastic slowdown in economic growth to 3.9% in 2011 from a high of 7.6% in 2010. –

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