PHL economy likely slowed in Q2 — Moody’s

By Elijah Joseph C. Tubayan, Reporter
PHILIPPINE economic growth may have decelerated in the second quarter weighed down by rising inflation despite robust consumption and investment, Moody’s Analytics said.
The sister company of debt watcher Moody’s Investors Service said gross domestic product (GDP) likely logged a 6.6% growth rate during the April to June period, slower than the 6.8% recorded in the first three months of the year, and a tad slower than the upwardly revised 6.7% in the second quarter of 2017.
It is also below the government’s 7-8% full-year target.
“GDP growth in the Philippines also likely softened a little. Consumer spending is healthy, thanks to steady inflows of overseas worker remittances and a firm labour market. External demand has remained solid but high base effects are at play,” Moody’s Analytics said in its Asia-Pacific Economic Preview dated Aug. 1.
“Consumer spending is healthy, thanks to steady inflows of overseas worker remittances and a firm labor market. Investment has been robust and is likely to remain strong, as the government boosts infrastructure development,” the report stated.
Central bank data showed April and May remittances grew 12.7% and 6.9% to $2.347 billion and $2.469 billion, respectively. Unemployment rate, meanwhile, slightly declined to 5.5% from 5.7% at the start of the second quarter.
Spending for infrastructure and other capital outlays, meanwhile, surged 48.63% to P195.6 billion in the second quarter — a notch higher than the P194.82 billion target for the period — according to data from the Department of Budget and Management.
“External demand has remained solid. Although these factors likely supported 6.6% GDP growth in the second quarter, rising price pressures will need watching,” Moody’s said.
Exports however declined 8.5% and 3.8% to $5.11 billion and $5.76 billion in April and May respectively, Philippine Statistics Authority (PSA) data showed.
Headline inflation hit a five-year high at 5.2% in June, and the six-month average at 4.3% — well above Bangko Sentral ng Pilipinas’ (BSP) 2-4% target band.
BSP Governor Nestor A. Espenilla had already said that the Monetary Board is considering “strong follow-through monetary adjustment” amid heightened inflation expectations with continued pressure on the peso.
The PSA is scheduled to report second-quarter GDP growth on Aug. 9, the same day of the BSP’s rate-setting Monetary Board meeting. The PSA will release July inflation data on Aug. 7.
“Among other things, it is likely that the sharp acceleration in inflation dampened spending and thereby GDP growth in Q2. Once the temporary disruption of the tax reforms have past, 7% GDP growth looks achievable considering the increase in infrastructure spending,” Veasna Kong, economist from Moody’s Analytics, said in an email when asked for further comment.
The Tax Reform for Acceleration and Inclusion law added and raised taxes on various items, while stripping out value-added tax exemptions and lowered personal income taxes, among others.