The Philippine economy remained resilient in the second quarter of 2003 as it continued to grow albeit at a slower pace, notwithstanding the SARS epidemic, the war in Iraq, and the prevailing peace and order problem in the country. The Gross Domestic Product (GDP) posted a 3.2% growth lower than the 4.1% posted in the same quarter last year. The significant gains in Net Factor Income inflows of 22.6% further boosted the economy, pushing the growth of the Gross National Product (GNP) upward to 4.5%, from the 2.3% recorded a year ago. On a semestral basis, the GDP grew by 3.9%, slightly lower than the 4.0% increment last year while GNP increased to 4.8% from the 3.3% growth during the first semester of 2002. While the GNP semestral growth, together with the end of the latest El Nino episode, the SARS epidemic and the war in Iraq bode well for the government target of GNP growth rate of 4.5%-5.4% for the year, the domestic economy needs a boost in the second semester to achieve the target of 4.2%-5.2% for GDP.

The slower domestic performance in the second quarter translated to a deceleration in the real per capita GDP, which grew by 0.9 %, from the 1.7 % growth recorded in the second quarter of 2002. Meanwhile, the expansion in GNP resulted to improved growth in per capita GNP, from 0 to 2.1%. Per capita PCE, likewise increased by 2.7%, from 1.5% in 2002.

Net Factor Income from Abroad (NFIA) registered a turn-around growth of 22.6% from the 18.5% decline a year ago. While deployment of OFW’s plunged to 11.6 percent in the second quarter as a result of the temporary ban imposed on labor-market countries due to the SARS epidemic and the recent Middle East conflict, the stock of OFWs remained higher compared to last year by 2.3%. The increase in stock, the reduction in property expense by 11.5% and the low base last year translated to high NFIA inflow for the period.

All the three major production sectors registered positive but diminished growths in the second quarter. Services continued to lead the economy as it grew by 5.0% from 5.5% increase last year. Finance posted a much better growth of 6.0% from its 4.4% performance a year ago while ODRE recovered from its 0.2% decline last year growing by 3.8%. Trade and Transportation, Communication and Storage (TCS), two major sub-sectors under services, both slowed down during the quarter. Trade grew by only 5.3% from its 6.4% performance last year while TCS registered a lower 8.2% growth compared to its 9.3% increase last year. Private and Government Services also posted lower growth rates during the period with 4.6% and 0.1% from 4.9% and 4.1%, respectively. The total services sector contributed 2.3 percentage points to the 3.2% growth of GDP.

Industry suffered a sluggish growth of 1.7%, following four quarters of substantial growths. The Manufacturing industry, decelerated to 4.1% from 4.8% growth a year ago, nonetheless, it contributed 1.0 percentage point to the GDP growth. Despite the 5.4% gain in Food Manufacturing, the growth of the sector was pulled down by the decline in seven manufacturing industries, led by electrical machinery, which went down by 15.1%. Mining and Quarrying also posted a lower growth of 13.8% from 34.6% growth in 2002 as a result of the zero production of the Malampaya Oil Rim Project. The double-digit growth in Mining and Quarrying during the quarter was largely attributed to the 59.4% growth of Other Non-metallic with the increased production of coal. The performance of construction worsened in the second quarter with a –12.2% growth from –8.4% in 2002. The growth of the sector was pulled down by public construction, which dropped by 22.3% from -11.8% in the previous year. The lack of impetus in public construction has caused the sector to suffer negative growths in seven of the last ten quarters. The Utilities sub-sector decelerated more than two-folds with 2.8% growth from its 6.5% output in 2002.

The El Nino and the occurrence of typhoons in May and June likewise cut down the growth of the combined Agriculture, Fishery and Forestry (AFF) to a mere 1.6% during the quarter. Two of the major crops of the country, Palay and Corn posted negative growths during the period. Palay further declined by 10.3% from a 5.1% drop in the second quarter of 2002. Furthermore, corn output decreased to 16.0% in the second quarter, its lowest recorded growth since Q1 1999. On the other hand, other agricultural crops posted gains during the quarter led by Sugarcane which surged to a 22.1% growth from its –0.7% performance last year.

The continued deceleration in the prices of consumer goods, nonstop increases in demand for mobile phones and the sustained increase in the remittances of Overseas Filipino Workers (OFWs) hiked personal spending as Personal Consumption Expenditure (PCE) continued to account for the biggest share in the GNP growth putting in 3.7 percentage points. PCE registered a 5.1% expansion, the highest growth recorded since Q2 1997. Major contributors to growth of the sector were increased expenditures on food, transportation and communication and miscellaneous services.

Exports of goods and services also experienced deceleration during the quarter with a minimal 1.6% growth from its 6.8% performance last year. Merchandise exports reported a 3.5 % growth during the quarter, lower than its 10.0% growth the same period last year. Consigned Finished Electrical Machinery, which used to be our second top merchandise exports was the top loser as it decreased further to 33.7% from -0.2% last year. Semiconductors, the top export of the country, posted a 0.7% decrease from the robust 36.4% growth a year ago. This is the first reported decline after four consecutive quarters of positive growth. On the other hand, other top merchandise exports, garments, crude coconut oil and gold from copper ores, reported positive growths during the quarter. The Exports of Non-Factor Services declined further from 9.1% during the second quarter of 2002 to 9.5% this year. Its sluggish performance is attributed to the 33.7% decline in the growth of Travel, which accounts for 34.8 percent of Total Exports of Services, an outcome of the SARS epidemic and the Iraq war.

Meanwhile, total imports of goods and services posted higher growth of 6.5% from 4.6% increase last year. Merchandise imports decelerated slightly with 6.3% compared to the 6.4% growth recorded last year. Electrical machinery continued to provide the biggest boost as it grew by 17.6% from last year’s 10.3%growth. Mineral fuels, the top merchandise imports, also improved registering a growth of 7.8% from 5.3% gain in 2002. Of the 15 principal imports, only two commodities registered negative growths, textile yarns which declined by 8.1% and feeding stuff by 45.4%. Imports on consignment also declined, from a 2.9% growth last year to -10.0% this year. Imports of Non-Factor Services went up significantly to 10.3% from a 22.2% contraction last year. Miscellaneous services grew by 52.5%, offsetting the huge decline in travel services, which dropped to negative 40.8% from last years 3.2% growth also due to the international crises during the second quarter.

Expenditures on investment declined in the second quarter of 2003 with a 0.4 % contraction, due mainly to sustained lack of support for public construction which caused the 11.1% drop in investment in Construction, and which could not be offset by the gains in Durable Equipment and in Breeding Stocks. Durable Equipment improved to 6.5% from a 5.7% growth in 2002 while Breeding stocks posted a 3.7% from 2.9% increase a year ago. Likewise, Government Consumption Expenditure (GCE) fell by 8.7% growth from a 5.1% gain last year, the lowest recorded for almost two decades. This was largely due to the sustained cost-cutting measures implemented by the government to contain the country’s budget deficit.

ROMULO A. VIROLA
Secretary General

PRESS CONFERENCE
on the
2nd Quarter 2003 Philippine Economy
28 August 2003
National Statistical Coordination Board
Makati City, Philippines

(from left:  Sec. Gen. Romulo A. Virola, NSCB; Dir. Gen. Romulo L. Neri, NEDA and
OIC-Dir. Scholastica D. Cororaton, NPPS, NEDA)

(from left:  NSCB Sec. Gen. Romulo A. Virola, NEDA Dir. Gen. Romulo L. Neri)

(Presentation of the
2nd Quarter 2003 Performance of the Philippine Economy by
NSCB Sec. Gen. Romulo A. Virola)