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A 5.58km elevated highway is under construction in Caloocan City, Metro Manila on Aug. 2.

Philippine economy's growth below target in first half

GDP up 6.5% in Q2, but government still urging private sector to spend more

MANILA -- Improved government spending propped up the Philippine economy enough for it to grow by 6.5% in the second quarter, but the country's overall performance in the first half still fell below the target, the government reported on Thursday.

Socioeconomic Planning Secretary Ernesto Pernia, the country's chief economic planner, said the Philippines is "on track" to meet its 6.5-7.5% goal, but prodded the private sector to spend more to meet the goal.

"With all of us exerting all efforts, and moving in sync to improve our economic performance, I can see the country demonstrating a more impressive performance for the rest of the year and even over the medium term," Pernia said at a news conference on Thursday.

Growth averaged 6.4% in the first half, the second fastest major Asian economy after China. The latest result, however, was a tad below the government's target for the year. In 2016, growth averaged 7% in the first half, buoyed by campaign-related spending at the height of the national elections in May last year.

Consumer spending drove the economy in the second quarter, contributing 3.9 percentage points to the total output. Government spending bounced back to 7.1% during the period, an acceleration from the flat performance in the previous quarter.

"This shows a marked improvement in the absorptive capacity of our government agencies," Pernia said.

However, investment growth declined to 8.7% in the second quarter after recording 30.3% growth in the same period last year.

Pernia attributed the decline to slowing construction spending by the private sector, brought about by concerns that an economic bubble is starting to build.

"Just think what could happen if both government and private sectors together exerted that extra effort," Pernia said. "We really need everyone and every sector to move in sync towards our goal of an inclusive, high trust and resilient society and a globally competitive knowledge economy."

Services, the major economic driver on the supply side, decelerated to 6.1% from 6.7%, but the slowdown was offset by the industry sector, which grew 7.3% from April to June, compared to 6.3% in the first three months.

Economists expect the Philippines' economic growth to further pick-up for the remainder of the year, backed by government spending under President Rodrigo Duterte's massive infrastructure program.

The president has touted his term as the "golden age of infrastructure." Under the so-called "Dutertenomics," the Philippines plans to spend 8.4 trillion pesos ($169 billion) over a six-year period and raise the share of infrastructure spending to 7.4% of GDP by 2022.

Duterte and Japanese Prime Minister Shinzo Abe are expected to formalize an agreement to build the Philippines' first subway mass transit line in Metro Manila, the country's capital.

Japanese investment bank Nomura forecasts Philippine GDP growth to settle at 6.7% for the year. The country's economic expansion is expected to pick up to 6.9% in the second half on the back of more fiscal support for growth, particularly in capital spending.

Rajiv Biswas, Asia Pacific chief economist for IHS Markit, said the government's infrastructure push should further support the Philippine economy in the second half.

"Improving infrastructure is very important for boosting the nation's industrial and export competitiveness, as the Philippines is competing for foreign direct investment with other ASEAN countries like Malaysia, Thailand and Singapore, which have invested heavily in high quality infrastructure," Biswas said.

The country's expansion also came at a time when Islamic State-inspired local militants besieged Marawi, a predominantly Muslim city in the southern Philippines. The conflict resulted in nearly 700 deaths and forced Duterte to place the entire southern island of Mindanao under martial law until the end of the year.

"There's really no effect vis-a-vis the crisis coming from that area," Pernia said.

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