GDP growth to rely mainly on state expenditures

By Melissa Luz T. Lopez
Senior Reporter
ECONOMIC GROWTH will likely remain below target this semester, a global bank said, with the pace to be driven largely by government spending as consumption will likely ease amid rising prices of goods.
Latest Treasury data showed robust growth in state expenditures, which grew by a fourth in September to P298.6 billion. Government spending was also three percent more than program for the first three quarters, with “productive” investments up 26% year-on-year.
The September deficit brought the nine-month fiscal balance to a P378.2-billion gap, 78% wider than the P213.1 billion tallied in the same period in 2017 and logging closer to the P523.6-billion programmed for the entire year.
Economic managers of President Rodrigo R. Duterte have scaled down their gross domestic product (GDP) growth forecast to 6.5-6.9% for 2018 from 7-8% originally, citing the need to be more realistic given tighter credit conditions, the impact of a trade war between the United States and China, as well as surging global oil prices. Growth is still shy of the revised goal, having clocked in at 6.3% last semester compared to a year-ago 6.6%.
“In order to clear the full-year program spending of P3.76 trillion, government spending will need to approach 40% growth on top of last year’s impressive 4Q print,” said Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila.
The bank analyst pointed out that much depends on the pace of state disbursements, as household spending, which has long been the biggest driver of economic activity, is expected to remain muted.
“Given the recent resolve the government has displayed in spending these past months, our forecast for 6.0-6.5% growth in the 2H will rely more heavily on the national government’s ability to pump-prime to offset the projected deceleration in household consumption as the twin effects of accelerating inflation and higher borrowing costs begin to bite,” Mr. Mapa added.
Inflation surged to a fresh 12-year peak at 6.7% in September versus the central bank’s 2-4% target band for full-year 2018. Prices of widely used goods rose by 6.2% overall in the third quarter compared to a year ago, in turn eroding the purchasing power of Filipino households as they now have to spend more money than usual on fundamental items like rice, vegetables, utilities and transport.
Mr. Mapa said that election-related spending may “kick into high gear” ahead of the midterm elections in May 2019, providing some overall growth boost.
The national government will also need to raise more funds via a mix of local and foreign currency denominated borrowings in order to meet its spending targets.
Deputy Treasurer Erwin D. Sta. Ana said on Monday that the government was on track with plans to sell a fresh set of dollar bonds this quarter, while a new retail bond offering is also in the works.
The national government borrows from local and foreign sources to fund increased spending — particularly for infrastructure projects — and boost economic activity.
The planned fresh credit will be on top of the P270 billion which will be raised from the domestic market this quarter by offering P180 billion in Treasury bills and another P90 billion in Treasury bonds.