Economic Report
May 19, 2017
Philippine Economic Growth:
1st Quarter FY17
Growth Performance
1Q17 GDP growth came in at 6.4%, lower than expecta-
tions, following high base effects of election-related spend-
ing during 1Q16 (6.9%).
GDP still grew at a healthy pace despite missing the gov-
ernments FY2017 target of 6.5%-7.5% and market con-
sensus of 6.7%.
Figure 1. GDP Contribution: Demand Side
11%
9%
7%
5%
3%
1%
-1%
-3%
-5%
-7%
2010 Q4 2012 Q1 2013 Q2 2014 Q3 2015 Q4
Household Government Capital Formation Net Exports
Source: Philippine Statistics Authority (PSA)
Demand Side
Household consumption grew slower for the third consec-
utive quarter at a pace of 5.7% y-o-y (4Q16: 6.3%; 3Q16:
7.1%), on the absence of 2016s election spending boost
and against a backdrop of rising inflation (1Q17 average:
3.2%) in 1Q17. While noticeably one of the slower seg-
ments for the quarter, household consumption growth
posted considerably strong demand for a first quarter post-
election year. Recall that 1Q11 household consumption
growth was only at 4.8% after the 2010 national elections.
Growth in consumption was supported by sustained in-
crease in OFW remittances (+8.1% y-o-y).
Government expenditure was flattish (+0.2% y-o-y) as a
result of lower capital transfers to local government units
(LGUs) and the delays in implementation and procurement
of various government programs.
Investments grew by 7.9% y-o-y (4Q17: 15.0%), moderat-
ing from 1Q16s 34.5% mainly due to the slowdown in all
components, except construction. Changes in inventories
declined by 112.6%, slashing off 1.0ppt from capital for-
mation. Inventory build-up slowed down this quarter, fol-
lowing the 241.2% q-o-q surge in 4Q16.
Robust exports growth outpaced imports with a higher
20.3% versus the latters 17.5%, on account of the Philip-
pine Pesos depreciation (1Q average PHP/USD: -5.5% y-o-
y or P2.7) which may have strengthened exporters com-
petitiveness in the face of improving global demand.
Net Exports shaved 0.2ppt from GDP, significantly lower
compared to 5-year average of -1.5%. In 2016 alone, net
exports shaved off 4.7ppt from GDP.
Figure 2. GDP Contribution: Supply Side
9.0%
7.0%
5.0%
3.0%
1.0%
-1.0%
2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1
Agriculture Industry Services GDP
2017 Q1 Source: Philippine Statistics Authority (PSA)
GDP
Supply Side
The agriculture sector grew 4.9% y-o-y, a recovery from
last years -4.3%. The rebound came from both subsectors,
as agriculture and forestry delivered a 5.7% growth and
fishing with 0.7% due to good climate and favourable
farming conditions.
Industry sector slowed down to 6.1%. Manufacturing
mainly boosted the sector with 7.5% growth. This was
however tempered by the slowdown in Electricity, Gas, and
Water Supply (1.4%) and weakness in Mining & Quarrying
(-20.0%).
For 1Q17, Mining & Quarrying was 20% lower - re-
flecting the decline in nickel and copper production of -
17% and -55% respectively. In February, former Depart-
ment of Environment and Natural Resources Secretary
Gina Lopez ordered the closure of 28 mining firms, of
which 21 are nickel producers.
The construction sector also moderated this quarter to
8.2% as growth in public construction decelerated to
2% (1Q16: 38.5%) as 1Q16 pre-election construction
activities dissipated. We believe that this may also be
partly due to the delays implementation and procure-
ment of government infrastructure projects. Meanwhile,
growth in private construction was sustained, as it grew
at a speedier pace of 11.9%.
Services sector declined to 6.8%, slower than 1Q16s
7.5%. The sector nevertheless remained as the main driver
of growth from the supply side, contributing 3.8ppt to
GDP. Growth from all sectors except compulsory social
security eased this quarter.
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1Q17 Philippine Economic Growth

Growth Outlook Table 1. Phil. GDP: Expenditure Origin (in %)
We still expect slower growth moving forward as overall
demand is set to normalize on the absence of election- 1Q17 4Q16 1Q16
related spending. Household Expenditure 5.7% 6.3% 7.1%
Government Expenditure 0.2% 4.0% 11.6%
Nevertheless, we see the Philippine economy to remain Capital Formation 7.9% 15.0% 35.2%
healthy underpinned by resilient household consumption. Fixed Capital 11.8% 18.7% 34.5%
Upside could come from acceleration of investments and Construction 9.9% 9.5% 16.0%
Durable Equipment 12.5% 26.2% 47.8%
government spendingparticularly on infrastructure. Breeding Stock & Orchard Dev't 3.1% 3.7% 3.8%
Intellectual Property Products 27.2% 28.7% 68.1%
We are also optimistic on the effects of a weaker Philippine
Changes in Inventories -112.6% -50.6% 60.3%
peso on export competitiveness and on the growth in the Exports 20.3% 10.4% 10.4%
peso value of OFW remittances moving forward. Imports 17.5% 15.0% 21.8%
GROSS DOM EST IC PRODUCT 6.4% 6.6% 7.0%
With Jan-Apr inflation averaging to 3.2%, nearing the
upper bound of the Bangko Sentral ng Pilipinas (BSP)s full- Source: Philippine Statistics Authority (PSA)
year inflation target range of 2-4%, we believe the BSP
may proceed with a rate hike in the 2H to temper inflation-
ary pressures. Table 2. Phil. GDP: Supply Origin (in %)
1Q17 4Q16 1Q16
Agriculture, Hunting, Forestry and Fishing. 4.9% -1.1% -4.3%
Figure 3. Domestic Demand vs GDP
Industry 6.1% 7.6% 9.6%
Mining & Quarrying -20.0% -0.5% 11.4%
(%) Manufacturing 7.5% 6.9% 8.0%
14.0 Construction 8.2% 11.0% 15.6%
Electricity, Gas and Water Supply 1.4% 8.9% 11.0%
12.0
Services 6.8% 7.4% 7.5%
10.0 Transportation, Storage & Communication 4.9% 6.3% 5.3%
Trade and Repair of Motor V ehicles,
8.0 Motorcycles, Personal and Household
6.0
Goods 7.1% 6.9% 7.5%
Financial Intermediation 7.4% 6.0% 9.7%
4.0 Real Estate, Renting & Business Activity 6.9% 9.0% 7.9%
Public Administration & Defense;
2.0
Compulsory Social Security 5.5% 12.1% 5.3%
0.0 Other Services 7.6% 6.5% 7.8%
4Q12 4Q13 4Q14 4Q15 4Q16 GROSS DOM EST IC PRODUCT 6.4% 6.6% 7.0%
GDP Domestic Demand Source: Philippine Statistics Authority (PSA)

Source: Philippine Statistics Authority (PSA)

Analyst: Janelle Christie Bunagan (jbunagan@firstmetrosec.com.ph)

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