Poll sees muted 1st quarter GDP growth on 2019 budget delay

By Mark T. Amoguis
Senior Researcher

ECONOMISTS expect gross domestic product (GDP) growth in the first quarter to be weighed down primarily by the impact of the delayed enactment of the 2019 national budget despite household spending and private sector investment picking up, according to results of a BusinessWorld poll.

A poll of 20 economists yielded a median GDP growth estimate of 6.1% for the first quarter, easing from the 6.3% uptick recorded in the fourth quarter of 2018 and the 6.5% expansion logged in last year’s first quarter.

If realized, this figure would be the lowest reading in two quarters or since clocking in six-percent growth in the third quarter of 2018. The Philippine Statistics Authority will report the official first-quarter GDP data on Thursday hours ahead of the central bank’s third monetary policy review for this year.

Last week, the country’s economic managers were “conservative” in estimating first-quarter GDP growth, with Socioeconomic Planning Secretary Ernesto M. Pernia penciling the pace at “above six percent” and Trade and Industry Secretary Ramon M. Lopez giving a 6.2-6.4% range.

The interagency Development Budget Coordination Committee, which sets official macroeconomic assumptions and fiscal program, slashed its 2019 GDP growth target last March to a range of 6-7% from 7-8% originally due to delays in signing the budget for this year.

GOV’T SPENDING DRAGS
Among many factors, many of the economists polled last week via e-mail attributed the expected GDP growth slowdown in the first quarter to the four-month delay in signing the P3.662-trillion national budget for the year.

“The main reason [for the slower reading in the first quarter] is that government spending growth ground to a halt as the government operated on a reenacted budget. Export and activity data also suggest growth slowed in other sectors of the economy in Q1,” said Alex Holmes, Asia economist at Capital Economics. He forecast a 5.4% growth in the first quarter.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc. (UnionBank), likewise cited the budget delay despite improving conditions in domestic demand due to the declining inflation trend.

“Specifically, government spending in Q1 may fall by about P46 billion, which represents wasted opportunity to implement infrastructure projects. This means that the demand side of the economy in general has slightly slowed down compared to the same period last year,” said Mr. Asuncion, who estimated 6.1% GDP expansion in the first three months of the year.

For Standard Chartered Bank economist Chidu Narayanan, the budget delay “likely shaved 0.3-0.5 ppt (percentage point)” off GDP growth in the first quarter. He gave a 6.2% growth estimate.

The government operated on a reenacted 2018 budget from the start of the year until April 15, when President Rodrigo R. Duterte signed the latest general appropriations into law, but vetoed P95.3 billion in appropriations that he said were not in accordance with his administration’s priorities, slashing this year’s national budget to about P3.662 trillion.

Running on a reenacted budget had left new projects unfunded in the first semester, which would otherwise have been ideal for infrastructure work ahead of the 45-day public works ban starting March 29 ahead of the May 13 mid-term elections and the rains next semester.

State disbursements missed the program by 11% at P777.99 billion in the first quarter, although they edged up a percent from P771.964 billion year ago according to data from the Bureau of the Treasury.

In March alone, state spending fell by eight percent from a year ago and 16% short of the P287.327 billion programmed for that month.

Separate data from the Department of Budget and Management show infrastructure and capital outlays growing 26.3% to P118.4 billion in the first two months of the year from P93.8 billion a year ago.

EASING INFLATION, ELECTION BOOST
On the other hand, economists said that private consumption may have gotten a boost from easing inflation as well as election-related spending in the run-up to the May 13 legislative and local elections.

Emilio S. Neri, Jr., lead economist at Bank of the Philippine Islands, predicted a 6.2% growth as “our leading indicators for retail sales, business and consumer confidence, car sales, government construction projects support our forecast on upside. We think election spending helped bolster growth on most of these items.”

DBS Bank economist Masyita Crystallin gave a 6.1% forecast, noting that “decelerating inflation has helped maintain purchasing power and hence we believe that consumption growth will be stable.”

ING Bank NV Manila Branch senior economist Nicholas Antonio T. Mapa also expects household consumption to have picked up in the first quarter, giving a 5.9% GDP growth estimate.

At the same time, Mr. Mapa doubted the impact of the “election bump” on the economy.

“[A] closer inspection of the contributions to growth per sector [shows that] the main reason for faster growth during EY (election year) is a strong showing from capital formation in the [first half] of the year,” he said.

“[Household] spending does see an acceleration as more funds exchange hands but the 2019 EY is likely to see boost emanate only from the consumption side with capital formation likely taking a back seat as rate hikes do their damage.”

Headline inflation eased for the fifth straight month to 3.3% in March — the slowest pace in 15 months or since December 2017’s 2.9% — bringing the year-to-date average at 3.8%. March brought the year-to-date inflation back within the 2%-4% target range of the Bangko Sentral ng Pilipinas (BSP) for this year, but still above the its reduced three percent forecast average for 2019.

April inflation data will be released tomorrow.

OUTLOOK
Despite the first quarter hiccup, economists expect the economy to recover for the rest of the year now that the national budget for this year has been signed.

“The signing of the 2019 budget in mid-April should see growth rebound in the second quarter. For the year as a whole, growth is likely to come in at around 6.0%,” said Capital Economics’ Mr. Holmes.

ING’s Mr. Mapa said that growth “will likely remain challenged” in the first half of this year due to the “lingering effects of the budget backlog and elevated borrowing costs.”

On the other hand, he added that the possible easing of monetary policy from the BSP and the 2019 budget coming on line “should help [second-half] growth finish the year strong.”