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Economists see pickup in GDP growth

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THE COUNTRY’s economic growth should have recovered in the third quarter on the back of household consumption and improved government spending, according to economists asked by BusinessWorld late last week, but hitting the government’s full-year target will likely still be a challenge.

A poll of 13 economists yielded a gross domestic product (GDP) growth estimate median of six percent for the third quarter, edging up from the second quarter’s 5.5% and January-March’s 5.6%.

If realized, the third-quarter estimate would match the actual reading the past year and will put the nine-month average at 5.7% — after last semester’s 5.5% average — against a 6-7% official target for the entire year.

Official third-quarter GDP data will be released on Thursday by the Philippine Statistics Authority. It will also report data on October inflation and September factory output on Nov. 5, as well as September trade in goods and third-quarter farm performance on Nov. 6.

Socioeconomic Planning Secretary Ernesto M. Pernia was quoted in earlier reports as saying that third-quarter GDP should bare “higher performance” compared to growth in the entire first half.

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Mr. Pernia had said it would take a second-half growth of 6.4% — doable according to state economic managers — to enable the economy to hit the lower end of that government’s target range for full-year 2019.

In a mobile phone message early last week, Finance Undersecretary Gil S. Beltran, the department’s chief economist, said he expected third-quarter GDP expansion to have accelerated from the first half and even be “higher” than the downward-revised six percent in 2018’s third quarter.

The Bangko Sentral ng Pilipinas (BSP) last Oct. 25 gave a 5.8-6% estimate for third-quarter GDP growth and “closer to the midpoint of the 6-7% target for the fourth quarter” on account of accelerated government spending as well as the uptick in consumer spending ahead of Christmas.

Analysts polled last week likewise pointed to the household-government spending combo as the economy’s main growth drivers going into the second half.

However, their views on capital formation’s contribution to economic growth were mixed.

“The improvement in government spending is the critical driver for the quarter. Third-quarter economic growth is expected to have been driven by robust remittances, improving employment and a benign inflation,” said UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion, who expects 6.1% GDP growth for the third quarter.

ING Bank N.V.-Manila Senior Economist Nicholas Antonio T. Mapa gave a 6.3% estimate for the third-quarter, saying: “On the expenditure side, we forecast household final consumption to deliver a sizeable contribution to growth, due largely to the fact that inflation has plunged to less than one percent in September, which should help entice an accelerated pace of spending.”

He added that capital formation “may finally show early signs of recovery and show marginal growth” after BSP has moved to partially unwind last year’s tightening cycle with a cumulative 75- basis-point reduction in benchmark interest rates this year that left a 100-bp hike still intact.

“All in all, a herculean effort from household spending accompanied by revitalized government outlays will more than make up for tepid capital formation numbers in [the third-quarter] to lift growth to 6.3%,” Mr. Mapa said.

Rizal Commercial Banking Corp. economist Michael L. Ricafort gave a 6.3% GDP growth forecast for the third quarter, saying: “Relatively low inflation… partly encouraged by the series of cuts in local policy rates and in banks’ reserve requirement ratios (RRR), could have already helped increased growth in consumer incomes and spending [and] spurred greater demand in loans that led to faster growth in investments, thereby leading to greater economic activities and faster GDP growth.”

Emilio S. Neri, Jr., lead economist at the Bank of the Philippine Islands, was also upbeat on government spending and household consumption, placing economic growth in the third quarter at six percent. “On the production side, the rebound in the services sectors may have outweighed the drag from agriculture and manufacturing,” said Mr. Neri.

On the other hand, Security Bank Corp. chief economist Robert Dan J. Roces gave a 5.8% growth forecast, saying: “The plunge by private investments in the second quarter could likely remain a source of weakness as external uncertainties provide a drag to growth.”

“In addition, the delayed passage of the 2019 budget continues to bite back as public spending was derailed and only begun to recover late in the third quarter,” he explained.

“However, the slowdown in inflation lifted household consumption, [which is] the main growth driver.”

For Ateneo de Manila University economist Alvin P. Ang, third-quarter growth can be expected to have clocked in at 5.7%.

“We expect some push from extending government spending,” Mr. Ang said.

“However, we still see lower investment growth due to the global and local environments,” he said, adding that growth in agriculture and allied sectors could have improved to 1.5% from the 0.7% and 0.6% growth rates in the first two quarters of the year.

Budget department data show the government spent about 17% more at P1.04 trillion in the third quarter from P886.2 billion a year earlier, a marked improvement from the 2.3% contraction in the second quarter and 0.8% in the first quarter. However, this increase was smaller than the 29.6% growth a year ago.

Moreover, infrastructure spending reached P234.8 billion in the third quarter, 7.7% more than the P218.1 billion recorded in July-September last year.

A closer look at the data showed infrastructure and other capital outlays reaching P100.3 billion in September, picking up from August’s P59.3 billion and the P65.2 billion spent in September last year.

These improvements reflected the government’s catch-up spending following the three-and-a-half month delay in enactment of the 2019 budget that sent new projects unfunded for the first four months of the year. In the first-half, government spending grew by 7.1%, slower than 12.6% in 2018’s comparable six months.

Meanwhile, capital formation declined by 0.1% last semester, a sharp reversal from a 14.9% expansion a year ago.

Of the 5.5% first-half growth, government spending chipped in just 0.86 percentage point (ppt), less than the 1.43 ppt it contributed in the first half of 2018. Capital formation similarly disappointed as it contributed a 0.04 ppt-decline versus its year-ago growth contribution of 4.24 ppt.

While economists on the whole agreed that overall economic growth has been picking up this semester, they remained cautious about chances it would hit the government’s 2019 target.

“[Fourth-quarter growth] is expected to again be over six percent, but overall 2019 GDP may fall short of the government’s target of 6-7%,” UnionBank’s Mr. Asuncion said.

For De La Salle University economist Mitzie Irene P. Conchada, “Given the rate that the economy is doing, it might be difficult to reach even the six percent growth target by end of the year.”

“Export performance has been sluggish and the economy is still recovering from the impact of high inflation the previous year,” said Ms. Conchada, who gave a 5.8% third-quarter GDP estimate.

For ING’s Mr. Mapa, “With the domestically induced speed bump in the rear view, we can expect growth to zoom to past six percent in the next few quarters for as long as government outlays continue (contingent on the 2020 budget passed on time), capital formation continues to heal (with BSP expected to ease rates further) and with consumption completing the growth story as inflation remains well within target.” — Jobo E. Hernandez

Analyst Estimates

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