Press Release
August 31, 2008

Legarda surprised by drop in gov't spending that slowed growth,
jobs creation

Sen. Loren Legarda has expressed surprise over the reported drop in government spending, a negative factor that contributed to slower-than-expected economic growth in the second quarter.

"It came as a big surprise to us. We assumed that because of strong value-added tax revenue collections, the government has been spending aggressively to support the economy and spur badly needed jobs," said Legarda, chairperson of the Senate committee on economic affairs.

Legarda nonetheless welcomed the government's plan to spend up to P230-billion next year for public infrastructure. The amount is 20.7 percent higher than this year's P122.2 billion allocation.

"Our only worry is that the spending might be too little, too late. The risk of more consumer price increases in the months ahead clearly threatens to drag the economy down and hold back jobs creation," Legarda said.

Legarda attributed the slowdown in government spending in the second quarter to the poor implementation of projects. "It seems that government has been slow to remove bottlenecks, particularly with respect to highly labor-intensive infrastructure projects," she said.

Legarda, meanwhile, credited the remittances of the overseas Filipino workers "as the economy's saving grace, as usual." Remittance inflows clearly continue to drive domestic consumption spending in a big way, she said.

Legarda noted that remittances via banks hit $4.29 billion from April to June, up 21 percent or $750 million from the $3.54 billion posted in the same period in 2007.

The National Statistical Coordination Board (NSCB) earlier reported that the economy expanded by 4.6 percent in the second quarter, marking the slowest pace since 2005, as consumer spending subsided.

Gross Domestic Product (GDP) growth was below the consensus estimate of 5.0 percent and the BSP's forecast of 5.3 to 5.9 percent. The NSCB also revised downward to 4.7 percent the previously reported 5.2 percent GDP growth in the first quarter.

GDP expansion was below expected largely due to the slack in consumer spending and the drop in government disbursements.

Consumer spending increased by a slower 3.4 percent versus 5.1 percent in the first quarter, as Filipinos got hit by surging oil, food and other commodity prices. Government spending was more disappointing, declining 5.1 percent after falling by 1.0 percent in the first quarter.

Rising inflation was partly responsible for the drop in government spending in real terms (spending was up 2.6 percent in nominal terms).

On the positive side, capital formation remained solid, increasing by 14.7 percent from 7.3 percent in the first quarter, while exports were surprisingly robust, growing by 7.7 percent.

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