Philippine Q1 GDP 4-year low of 5.6% y/y on delayed budget approval

10, May. 2019

MANILA, NNA – The Philippine economy grew at the slowest pace in four years, up 5.6 percent year-on-year in the January-March quarter, as the delay in budget approval dented some program and infrastructure spending and exports lost steam amid the global slowdown.

The Q1 GDP came in weaker than the market consensus of 6 percent and was the slowest growth since the 5.1 percent seen in the first three months of 2015. It was below the official 2019 target range of 6 to 7 percent.

The Philippine Statistics Authority released the latest quarterly GDP data on Thursday.

Key Points:

―― For the first three months of fiscal 2019 starting Jan. 1 the government had to take stop-gap measures to continue running until the 2019 national budget took effect in mid-April. This caused a 3.9 percent slump in construction spending in Q1 GDP, compared with 10.2 percent growth recorded a year earlier.

―― Government spending slowed to 7.4 percent from an average pace of 13.1% year-on-year growth in 2018. In addition to slashed public works spending, private-sector construction was also slow due to the business cycle.

―― Business investment in equipment grew by 5.7 percent, slower than the 7.2 percent a year earlier.

―― Net exports were also a damper on total domestic output. With export volume up 5.8 percent y/y, the slowest growth since 2015, and import volume up 8.3 percent, the net export deficit rose to 7.8 percent of GDP, the highest on record, according to HSBC economists.

―― On the upside, private consumption, which accounts for over 60 percent of GDP, rose 6.3 percent y/y, accelerating from 5.3% in the previous quarter, the fastest pace in over two years, thanks to a slower rise in the cost of living. “We expect this to remain robust with a more upbeat consumer sentiment over the quarters ahead and the continued moderation in inflation,” Socio Economic Planning Secretary Ernesto Pernia told news media.

―― Among the main Q1 growth drivers are spending on automobiles and household goods, up a combined 7.4 percent, compared to 6.1 percent in the same period last year. Services rose 7 percent, up from 6.7 percent a year earlier.

Takeaway:

―― Without the delayed budget, the government estimates Q1 growth would have been 6.6 percent. To hit the full year growth target of 6 to 7 percent, the economy needs to expand an average of 6.1 percent over the next three quarters.

―― The downside risks are mainly external: slower global growth, trade tensions and rising oil prices.

―― Government spending grew at the slowest pace in two years on the delayed budget while business investment in equipment was at its lowest in five years on higher borrowing costs, “implying a drastic shift in economic activity from recent quarters,” HSBC economists said in a statement.

―― But Michael Ricafort, economist at RCBC bank, said he believes passage of the 2019 budget will accelerate government spending in the coming months and make up for the Q1 slowdown. Election-related public spending, tamed inflation after last year’s spike and possible monetary easing will also help, he said.