Philippine GDP growth falls to over 4 year-low on delayed budget, public works ban

09, Aug. 2019

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MANILA, NNA – The Philippines’ gross domestic product growth fell again in the second quarter to 5.5 percent, below market expectations, on weaker investments and slower government spending, with household spending failing to offset the slowdown, data from the Philippines Statistics Authority released on Thursday showed.

The National Economic and Development Authority largely attributed the country’s weak economic performance to the delayed passage of the 2019 national budget and the ban on public construction during the election period in May.

Key Points:

―― The April-June reading was slower than the 5.6 percent recorded in the previous quarter, and the 6.2 percent record in the same period last year. It was also the lowest figure in 17 quarters, or since the 5.2 percent growth in the first quarter of 2015. It was also slower than the market consensus of a 5.9 percent expansion.

―― Dragging on growth was capital formation (-8.5 percent vs. 8 percent in Q1), particularly fixed capital formation (-4.8 percent vs. 6.4 percent). Construction also decelerated further to 2.6 percent from 6.4 percent in the January-March period. Public construction declined 27.2 percent in Q2.

―― Government spending remained downbeat at 6.9 percent in Q2 versus 7.4 percent in the previous quarter, and 11.9 percent in the same period last year. The weaker outlay growth is largely attributed to the delayed approval of the 2019 national budget.

―― Socioeconomic Planning Secretary Ernesto Pernia explained in a briefing that the decline in consumer and business confidence may have contributed to the decrease in investments. The government spending also tends to “motivate private investments. But since that wasn’t happening (because of the delayed budget approval), you will expect capital investments to be not as robust as before,” he noted.

―― Economists expected private consumption, which accounts for over 60 percent of GDP, to offset the contracting capital formation and weak government spending, but it failed to do so. Private consumption rose only 5.6 percent, slower than the 6.3 percent posted in the first quarter. “Elevated borrowing costs continue to divert disposable income from consumption to higher interest rates,” Nicholas Mapa, senior economist at ING Bank Manila, told NNA.

―― Pernia said other factors that may have contributed to the further slowdown in GDP growth are growing protectionism in advanced economies, and the El Nino phenomenon or dry weather which severely affected water supply in Metro Manila from March to May. He said the water shortage adversely affected consumer confidence, which led to slower household consumption.

―― On the industry side, the service sector (+7.1 percent vs. +6.8 percent in the first quarter) continues to drive GDP growth.

―― Pernia said in the briefing that GDP would need to grow at least 6.4 percent in the second half of the year to achieve its 6 to 7 percent annual growth target.

―― To recall, the passage of the government’s budget for 2019 was approved on April 15. In May, the government began its ban on public infrastructure construction due to the elections. Government construction resumed in June.

Takeaway:

―― Given that the majority of congressmen and senators are allies of President Rodrigo Duterte, Pernia is confident that lawmakers will pass the 2020 national budget within the deadline.

―― “I think it’s almost certain that congress will do a better job at expediting the approval of the 2020 budget. I think they would be embarrassed if (a delay) happens again. I just think they would no longer allow for something like that to be repeated,” he said.

―― Despite the unexpected slowdown, some analysts believe the country’s economy will still pick up in the latter half of the year, and may still hit the government’s full-year growth target.

―― “The expectation is that government spending will recover (in the second half) and that slowing inflation, declining unemployment, and the still steady OFW (overseas Filipino workers) remittances will continue to support robust domestic consumption,” Ruben Carlo Asuncion, chief economist at the UnionBank of the Philippines, told NNA.