PREVIEW: Pickup in domestic consumption to lift Q2 Philippine GDP
By Darlene Basingan
MANILA, NNA – The Philippines’ gross domestic product may slightly recover in the April-June quarter thanks to strong domestic consumption, but would still likely remain below the government’s downgraded target of 6 to 7 percent due to the delay in the approval of the government’s budget for this year, economists have said.
Moving forward, they see the country’s full-year GDP still growing at the lower end of the government’s target as it aims to ramp up public spending to reverse the four-year-low GDP of 5.6 percent in the first quarter, which is due largely to the government’s underspending as a result of the delayed budget.
Four of seven economists, whose forecasts were compiled by NNA, see the second quarter GDP of the Philippines growing 5.8 percent, a slight increase from the January-March reading and below the 6.2 percent growth in the second quarter last year.
Most of the economists attributed the slower GDP pace to the slow recovery of government spending as a result of the delayed passage of the government’s budget, which was approved only in the second week of April.
To recall, the Philippines’ congress failed to pass the national budget on time, which automatically led the government to shift to the spending plan of 2018. It resulted in a significant drop in government expenditure, with the Department of Finance reporting a 1 billion peso ($19.2 million) daily worth of forgone expenditure in the first quarter.
“The delayed approval [of the budget] still has spillover effects. If you look at it, June expenditures were up but still not enough to make up for the April-May period… During the May 13 elections, you also have [the government] spending ban. You cannot make any projects during an election period,” Nicholas Mapa, senior economist at the ING Bank in Manila, told NNA in an interview last week.
He also attributed the lower growth forecast to weaker gross capital formation, which he said is due to high interest rates last year.
Euben Paracuelles, senior economist for Southeast Asia at Nomura Securities Singapore Pte. Ltd., who sees lower growth of 5.7 percent, among other economists, also attributed his forecast to weak growth in goods exports.
Meanwhile, Ruben Carlo Asuncion, chief economist of the UnionBank of the Philippines, forecasts GDP to grow slightly higher at 5.9 percent, while Michael Ricafort of local lender Rizal Commercial Banking Corp. sees it growing 6 percent.
“…public investment is expected to rebound with slight improvement in government disbursements, evidenced by the implementation of the last tranche of salary increase of government personnel, the release of mid-year bonuses, and the execution of new programs due to the approval of the national budget (in April 2019)” Asuncion told NNA in an email.
Most of them expect some offset from an increase in domestic consumption as a result of lower inflation and interest rates among others.
“GDP growth may have been driven by slowing inflation, low unemployment, and robust OFW (overseas Filipino workers) remittances, all feeding higher domestic consumption in Q2,” Asuncion said.
Contributing to the growth in consumer spending was “the sharp decline in interest rates, because when interest rates are much higher we experience a slowdown in demand as it’s much more expensive to borrow, especially in the long term,” Ricafort told NNA in an interview last week.
The Philippine central bank slashed interest rates to 4.50 percent in May from 4.75 percent, its first cut in nearly three years, after inflation continued to slow down from the beginning of the year.
For full-year growth, most of them expect the Philippines to achieve its 6 to 7 percent GDP target as the government announced what it called a “catch-up plan” to attain its target, which is mainly ramping up spending on infrastructure and social protection programs.
“I think of the positiveness arising from the government’s catch-up plan. They plan to do at least 800 billion pesos in the second half,” Jonathan Ravelas, chief market strategist of BDO Unibank Inc., told NNA in an interview last week, referring to his 6.1 percent full-year GDP growth forecast, while projecting 5.8 percent for the second quarter.
“I think in the second half of the year we have an acceleration because government spending is going to return. If the BSP continues cutting policy rates, that’s also good for growth. If inflation continues going down, that’s good for consumption. So, if you have all three major factors going at a good pace, I think the Philippines will finish the year strong,” Mapa said.