Economic growth closes in on target

By Beatrice M. Laforga

THE COUNTRY’s economic growth in the July-September period beat market expectations as it rebounded from the first and second quarters and from a year ago on the back of bigger government expenditures that added to the lift from robust household spending, the Philippine Statistics Authority (PSA) reported on Thursday.

Gross domestic product (GDP) growth clocked in at 6.2%, marking the fastest clip this year so far and picking up as well from the year-ago six percent.

That compares to the six percent median of 13 economists BusinessWorld polled late last week and the Bangko Sentral ng Pilipinas’ (BSP) 5.8-6% estimate range.

Late enactment of this year’s national budget and a ban on new public works 45 days ahead of the May 13 midterm elections resulted in subdued infrastructure spending that left last semester with a muted 5.5% GDP expansion against the government’s 6-7% target for the year.

The latest pace brought year-to-date GDP growth to 5.8%, closer to the lower end of the full-year goal though still a slowdown from the past year’s 6.2%.

“This means that the Philippine economy will have to expand by at least 6.7% in the last quarter of the year to meet the low end of the full-year target of 6-7% for 2019 — a challenge that we are confidently taking on,” Socioeconomic Planning Secretary Ernesto M. Pernia said in a press conference in Pasig City.

He noted that, in Asia, the Philippines placed behind Vietnam’s 7.3% but outpaced China’s six percent, Indonesia’s five percent and India’s expected third-quarter growth “of below six percent.”

For BSP Governor Benjamin E. Diokno, “third quarter GDP growth of 6.2%… suggests that the Duterte administration’s catch-up [spending] plan is working.”

“The six-percent full-year GDP growth target is a tall order after a slower-than-expected first half, but still doable.”

Mr. Diokno, who has said that the central bank will likely pause monetary policy easing after cutting this year benchmark rates by a total of 75 basis points and banks reserve requirement ratio by 400 bp, noted that “current monetary policy remains appropriate. The economy is back on tract to a strong growth path.” The central bank is scheduled to hold its remaining policy reviews for 2019 on Nov. 14 and Dec. 12.

Mr. Pernia noted that “the stronger growth in public spending in the third quarter contributed significantly to our Q3 performance.”

FACTORS
Government final consumption expenditure picked up by 9.6% from 7.4% and 7.3% in the first and second quarters, respectively, though still lagged behind the 14.3% logged in last year’s third quarter.

The Budget department has reported that 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. Infrastructure spending alone amounted to P234.8 billion in the third quarter, 7.7% more than the P218.1 billion recorded in the same period last year.

Growth of household final consumption expenditure picked up to 5.9% from slowdowns to 5.5% in the preceding quarter and to 5.3% the past year.

Capital formation, however, weighed on growth with a 2.1% contraction that was nevertheless smaller than the second quarter’s 8.5% drop.

Under this expenditure category, fixed capital formation turned around to a 2.1% growth from the preceding quarter’s 4.6% drop, though it was still slower than the past year’s 16.6% increase. Durable equipment contracted by 9.1%, though smaller than the second quarter’s 12.8% drop, while construction surged by 17.3% from the second quarter’s 2.8% increment and the year-ago 13.3%.

“Construction activity was the bright spot for overall fixed capital investment, posting a strong 17.3% expansion but ultimately was unable to lift the segment into positive territory. Capital formation accounts for roughly 25% of the economy and as a whole, it weighed down on growth by 0.56 percentage points,” Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila Branch, said in an e-mail.

For UnionBank of the Philippines, Inc. Chief Economist Carlo O. Asuncion, the drop in capital formation reflected foreign investors waiting “on the sidelines” especially in terms of business expansion as the government overhauls fiscal incentives.

Mr. Asuncion said this was shown in the continued decline of foreign direct investments, which latest data bared a 40.59% drop in July to $543 million from $914 million a year ago.

“This capital formation contraction will bear on further economic growth. Investments are important to employment and increased consumption. Note that 60-70% of the Philippine economy is reliant on domestic consumption,” he said in a mobile phone message yesterday.

There was not much lift from foreign trade, however, as export growth slowed to a nearly flat 0.2% from 4.8% in the second quarter and 14.2% in the third quarter. Under this item, merchandise exports actually fell by 1.3% compared to the second quarter’s 4.9% and third quarter 2018’s 16.8%, while service export growth picked up to 8.1% from 4.3% in the second quarter and third quarter 2018’s 1.9%.

In a note sent to journalists on Thursday, HSBC Global Research Economist Noelan Arbis said “private consumption and fixed investment are both likely to drive growth faster in 4Q, on a sequential and seasonally adjusted basis (high base effects could lead to a lower y-o-y reading)”.

Capital Economics Asia economist Alex Holmes, however, doubts that growth rebound can be sustained, saying in a note: “We don’t think Q3’s strong figures mark the start of a sustained rebound.”

“On the plus side, consumption should continue to grow at a decent rate, helped in part by a sharp slowdown in inflation, which will have boosted consumers’ purchasing power.”

The BSP’s third-quarter Consumer Expectations Survey showed the overall confidence index (CI) at 4.6% in those three months, capping four straight quarters of pessimism and marking the best result since the 9.5% recorded in 2017’s last three months.

The “next quarter” CI (looking ahead to the fourth quarter) came in at 15.8%, the best reading in seven quarters or since the 17.5% recorded in 2017’s last three months.

On the other hand, the third-quarter Business Expectations Survey put the overall CI at 37.3% for those three months, lower than the second quarter’s 40.5% though still better than the year-ago 30.1%. The “next quarter” expectation level (for the fourth quarter) was at 56.1%, better than the second quarter’s 47.6% and the year-ago 42.6% and the best reading in three years or since the 56.8% recorded in 2016’s third quarter. — with input from Reuters