ECONOMISTS expect the country’s economic growth to have stayed robust in the second quarter despite faster inflation, as increased government spending and private investment offset a possible slowdown in household spending, results of a BusinessWorld poll showed.
A poll of 15 economists and analysts late last week yielded a median gross domestic product (GDP) growth estimate of 6.8% for the April-June period, steady from the pace registered in the first quarter and slightly faster than the 6.6% logged in the same period a year ago.
If realized, the figure would put the first-half average growth at 6.8%, a few points below the low end of the government’s 7-8% target for 2018.
Analysts’ Q2 GDP growth estimates (2018)
Official second-quarter GDP data will be released on Aug. 9 by the Philippine Statistics Authority (PSA), which will also report July inflation and June factory output on Aug. 7 as well as April-June data on farm production — which has historically contributed nearly a tenth to GDP — and June international merchandise trade statistics on Aug. 8
In a note last Friday, Moody’s Analytics, Inc. gave a 6.6% estimate for second-quarter growth, citing a pickup on the back of “healthy” consumer spending fueled partly by steady inflows of remittances from overseas Filipino workers (OFW) coupled with increased private investment and government spending. At the same time, it flagged a damper in the form of “rising price pressures”.
At the same time, analysts of First Metro Investment Corp. said that GDP growth for the quarter may have hit seven on “outsized gains” in infrastructure spending, capital goods imports and manufacturing output notwithstanding the elevated prices in the same three months.
Headline inflation averaged 4.3% last semester, settling above the government’s 2-4% target for the year after the nine-year-high 5.2% clocked in June.
Similarly, inflation experienced by low-income households clocked in at 6.5% in the second quarter — its highest level in almost four years — due to accelerated price increases in utilities and staple food items.
Still, analysts polled by BusinessWorld were for the most part upbeat with government spending and private sector investment lifting growth.
Ruben Carlo O. Asuncion, chief economist at the Union Bank of the Philippines (UnionBank) gave an estimate of seven percent with the growth projection coming mainly from “increasing government consumption and investment.”
“The medium-term economic outlook for the Philippines remains favorable… The first six months of 2018 saw monthly government expenditure increasing as the Duterte administration implements its ‘Build, Build, Build’ program,” he said.
“The steady growth of OFW remittances in the first five months of 2018 feeds into domestic demand uptick together with the probable impact of the tax cuts accorded by TRAIN package 1,” he added, referring to the Tax Reform for Acceleration and Inclusion law.
Land Bank of the Philippines (LANDBANK) market economist Guian Angelo S. Dumalagan likewise penciled in a seven percent second-quarter GDP growth, saying: “Strong public and private investment spending likely bolstered the economy despite the limiting effect imposed by elevated inflation on consumer spending.”
“Remittances from overseas Filipinos picked up, helping temper the negative impact of rising prices,” he said, adding that “net trade likely remained in deficit, despite some improvement in exports.”
Jose Mario I. Cuyegkeng, senior economist at ING Bank N.V. Manila, estimated 6.7% GDP growth, saying: “Household spending growth should hold up well despite the rising inflation environment although a more moderate pace of growth is likely.”
He added that “[i]ncome tax reform, together with higher growth of the peso-value OFW remittances, would support some growth in household spending.”
Mr. Cuyegkeng also cited government spending as a driver, with power consumption, manufacturing and loan growth chipping in.
On the supply side, economists expect industry — particularly manufacturing and construction — to have performed well in the second quarter along with services.
Expectations on the performance of agriculture, however, were mixed.
“The broad-based expansion in services [in] the first quarter is expected to continue in the second quarter…” UnionBank’s Mr. Asuncion said, adding that manufacturing can be expected to have been robust given the boost in capital goods imports.
“The agriculture sector for Q2 seems to have been positive as much of the weather disturbances were fairly recent, thus not impacting Q2 prospects.”
Imports of capital goods, which accounted for roughly 33% of total imports, rose 11.6% to $14.055 billion in January-May, according to latest trade data.
Cid L. Terosa, economist and dean of the University of Asia and the Pacific School of Economics, put second-quarter economic growth within the 6.8-7% range, noting: “The second quarter was characterized by strong capital formation in the form of greater spending on infrastructure projects.”
“This stimulated growth in the manufacturing and service sectors,” he said.
“Also, the second quarter was marked by strong consumption spending due to school-related spending and, to a certain extent, the rise in jobs.”
Angelo B. Taningco, economist at Security Bank Corp., expected GDP to have growth 6.7% in the second quarter with “healthy output activity” in construction, manufacturing, finance, real estate and retail trade.
At the same time, he said, “the headwinds to growth include the widening trade deficit and the sluggish agricultural production,” adding that inflation may have also dampened consumer spending and export growth.
Mitzie Irene P. Conchada, vice-dean at the De La Salle University School of Economics, gave a 6.9% GDP growth estimate, but noted that agriculture growth “may have been dampened by the recent typhoon and monsoon rains.”
State infrastructure spending and capital outlays reached P352.7 billion in 2018’s first half, 41.6% more than the P249.1 billion recorded in 2017’s first six months and 4.3% more than the P338.3-billion program for last semester.
Private investment, as measured by capital formation, grew 12.5% in the first quarter from 11.4% in 2017 first three months.
OFW cash remittances grew 4.2% to $11.822 billion as of May from the $11.346 billion recorded in 2017’s comparable five months. The central bank expects remittances to touch a new all-time high and grow by another four percent this year, coming from 2017’s record-high $28.06 billion.
Manufacturing remained a bright spot with the Nikkei Philippines Purchasing Managers’ index logging 52.9 — denoting growth from the preceding month — in June, though milder than May’s 53.7 reading. The country’s index stayed above the 50 threshold that separates readings above it that denote expansion from those below it that reflect deterioration of business conditions.
The Philippine reading was also better than the 51 average in June among the seven Southeast Asian economies covered.
Furthermore, results of the PSA’s latest Monthly Integrated Survey of Selected Industries showed factory output — as measured by volume of production — posting a 21% average growth as of May, faster than the 7.3% recorded in 2017’s comparable five months.
Net exports have remained a downside to GDP, as the country posted a trade deficit of $15.766 billion in January-May with imported goods growing by 10.9% versus the five-percent contraction of merchandise exports in the same period. — Lourdes O. Pilar