By Lourdes O. Pilar

THE PHILIPPINE ECONOMY likely grew in the fourth quarter at its fastest pace for 2019 on the back of robust household spending and a rebound in government spending, but not enough to hit its full-year goal, BusinessWorld’s latest poll of economists showed.

A poll of 20 economists conducted late last week yielded a gross domestic product (GDP) growth median estimate of 6.4% for the fourth quarter and 5.9% for full-year 2019.

Analysts’ Q4, full-year 2019 growth estimates

The quarterly estimate was faster than the 5.6%, 5.5% and 6.2% in the first to third quarters of last year. However, the annual estimate was below 2018’s 6.2% actual pace and the downward-revised 6%-6.5% target set by the government for 2019.

If realized, the full-year estimate would break the economy’s seven-year streak of at least six-percent growth.

Official GDP growth data will be released on Thursday by the Philippine Statistics Authority (PSA), a day after the release of the PSA’s fourth-quarter data on farm production, which has historically contributed nearly a tenth to GDP.

GDP growth slowed to 5.8% in last year’s first three quarters from the 6.2% in the same period in 2018. Much of the drag was due to the disappointing growth rates of 5.6% and 5.5% in the first two quarters of last year with analysts blaming the nearly four-month delay in the approval of the 2019 national budget which left new projects unfunded and stymied government spending.

To recall, the government operated on a reenacted 2018 budget from January to April 15, when President Rodrigo R. Duterte signed last year’s national budget into law but vetoed P95.3 billion in funds that were not in sync with state priorities, slashing the total to P3.662 trillion.

Socioeconomic Planning Secretary Ernesto M. Pernia gave a 6.5%-7% growth estimate for the fourth quarter back in November, citing faster household consumption from the holidays and the boost from easing inflation.

Moreover, the poll’s 5.9% median estimate for 2019 compares with the 5.7% forecast given by the International Monetary Fund, the separate forecasts of 5.8% by the World Bank and Moody’s Investors Service, and six percent by the Asian Development Bank, Fitch Ratings, and the ASEAN+3 Macroeconomic Research Office.

Economists pointed to faster household spending in 2019 brought by the easing of inflation last year following the almost runaway inflation in 2018.

“As expected, household final consumption, powered by remittances growth, higher employment and better incomes, has mainly fueled [fourth-quarter 2019] GDP growth,” said UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion in an e-mail, who pegged fourth-quarter GDP growth at 6.4% and the full-year rate at 5.9%.

IHS Markit Asia Pacific Chief Economist Rajiv Biswas likewise pointed to household consumption, which was supported by “firm growth in inward remittances from workers abroad as well as continued expansion in government infrastructure spending.”

“Growth in the second half of 2019 has been boosted by a rebound in fiscal spending, following the delayed budget and spending freeze ahead of the 2019 midterm elections,” he said.

Mr. Biswas expects a year-on-year GDP growth rate of 6.3% in the fourth quarter and six percent for full-year 2018.

For Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort, the economy likely grew by 6.6%-6.7% in the fourth quarter and six percent last year, saying that consumer spending “could have also been supported… by the strongest employment data since revised records started 20 to 30 years ago” along with sustained growth in remittances, foreign investment inflows, as well as revenues from Philippine Offshore Gaming Operations, business process outsourcing firms, and tourism.

On the other hand, a number of economists in the survey pointed to capital formation’s weakness last year.

“Perhaps the biggest drag on the economy for the year [was] the negative performance of capital formation in [the second and third quarters] as the BSP’s (Bangko Sentral ng Pilipinas) 2018 rate hike salvo [weighed] on bank lending,” said ING Bank NV-Manila Senior Economist Nicholas Antonio T. Mapa, who expected GDP growth to finish strong at 6.6% in the fourth quarter and six percent in 2019.

“With BSP quickly dialing back partially this tightening with 75 basis points worth of rate cuts in 2019, we can hope for a recovery in investment activity to close out 2019,” Mr. Mapa said.

Security Bank Corp. Chief Economist Robert Dan J. Roces forecast 6.6% and 6% growth in the fourth quarter and full year, respectively. “Capital formation meltdown was what really hurt us in the past quarters, plus delayed spending due to a delayed budget,” he said.

For University of the Philippines Economist Jefferson A. Arapoc, GDP likely grew 6.1% in the fourth quarter and 5.9% last year.

“Although government spending has started to pick up [in the fourth quarter], key sectors of the economy are continuously experiencing challenges,” he said.

Mr. Arapoc cited the PSA’s Monthly Integrated Survey of Selected Industries where data showed factory output, as measured by the volume of production index, declined for twelve straight months and posted an average decline of 7.6% in January-November 2019.

“[T]he agricultural sector remains sluggish due to several problems, which include the outbreak of the African Swine Fever and the havoc brought by typhoons Kammuri/Tisoy that affected seven regions in the country,” Mr. Arapoc added.

Moreover, trade is seen to be a net negative contributor to growth for 2019.

“Economic growth was largely held back by external headwinds, particularly the lingering impact of the US-China trade tussle despite the ‘phase one’ partial trade settlement between the world’s top two largest economies. Regional trade was majorly affected impacting supply chains within the Association of Southeast Asian Nations region,” UnionBank’s Mr. Asuncion said.

As of end-November, merchandise exports and imports slipped by 0.02% and 4.6%, PSA data showed, below the government’s 2019 growth targets of 1% and 2%, respectively.

Cash remittances, which fuels household spending that contributes nearly 70% to GDP, reached $27.231 billion in the 11 months to November, increasing by 4.4% compared to $26.094-billion haul in the same period in 2018.

Meanwhile, household spending went up 5.8% during last year’s first three quarters, faster than the 5.7% uptick in 2018.

The government spent P3.303 trillion as of end-November last year, 6.73% more than the P3.095 trillion in the same 11 months in 2018.

Furthermore, infrastructure and capital outlays slipped 5.5% to P628.5 billion in January to October last year from P665.1 billion in the same comparable 10 months in 2018.