Gov’t spending to drive 6.6% 2017 GDP rise -- Metrobank

Posted on August 02, 2017

GROSS DOMESTIC product (GDP) is expected to grow 6.6% this year, analysts at Metropolitan Bank & Trust Co. (Metrobank) said, driven by the government’s aggressive infrastructure spending.

June infrastructure spending was P51.9 billion, up from P46.6 billion a year earlier and up 12.2% on May’s P46.2 billion. BW FILE PHOTO
The analysts said GDP growth will also be fueled by solid remittances, investment spending in the second semester, a turnaround in the Agriculture sector and a robust performance from services.

In the first quarter, GDP grew by 6.4%, falling short of market expectations. At that rate, however, Philippine growth was still the second-fastest in the three months to March among major Asian economies next to China, which grew by 6.9%.

“The first-half fiscal performance of the government bodes well for the economy, with the deficit numbers so far lending credibility to the government’s spending plans... (spending) could likely translate to average GDP growing around the 6%-7% level,” Metrobank said in a report released on Monday.

The government registered a P90.9 billion fiscal deficit in June, wider than the month’s programmed P16.7 billion and double the year-earlier total of P45.2 billion. The government’s official target for the year is growth of 6.5-7.5% from 6.9% in 2016, which came in near the top of the 6-7% target band.

The government plans to spend around P847.22 billion this year on infrastructure alone, which is equivalent to 5.32% of GDP. Economic managers want to raise the share of infrastructure spending to 7.4% of the economy by 2022 from a 4.7% share in 2016.

Data from the Budget department showed infrastructure and other capital outlays grew more than 5% year on year to P131.6 billion in the second quarter.

This brought infrastructure spending to P249.1 billion in the fist half of the year, up 8.8% year on year and up 5% on the programmed amount of P236.6 billion for the first six months.

June infrastructure spending was P51.9 billion, up from P46.6 billion a year earlier and up 12.2% on May’s P46.2 billion.

The bank, however, said “diverse global economic growth and the impact of financial market volatilities” could affect domestic economic growth moving forward, particularly geopolitical tensions, upcoming elections in Italy, post-Brexit negotiations, tightening fiscal conditions in the US and elevated debt levels in some economies.

“The Philippines continues to be a bright star in the Asian region, surpassing the growth of ASEAN economies once again. Full-year GDP growth is still expected to come in above the 6% level underpinned by robust consumption spending, a pickup in government spending, recovery of the agri sector, and strong service sector,” it noted.

Meanwhile, it maintained its inflation forecast of 3.1% for the year, which compares with the actual 2016 level of 1.8%, on the back of a weaker peso, increased imports, volatile global oil prices and factoring in the recovery in the Agriculture sector. Its projection was within the BSP’s 2-4% target range for 2017.

Metrobank, however, noted the BSP will not likely adjust policy rates within the year amid prospects of manageable inflation.

“The BSP is not expected to tweak policy rates until yearend. Stronger inflationary pressure, a weaker peso, and implementation of the tax reform package could mean higher interest rates down the line,” the analysts said.

The BSP has maintained policy settings for 22 straight monetary board meetings following a tightening in September 2014. Rates are set at 3.5% for the overnight lending rate, 3% for the overnight reverse repurchase rate and 2.5% for the overnight deposit rate. -- Janine Marie D. Soliman