By Beatrice M. Laforga
OVERALL economic growth this quarter can be expected to bear a boost from bigger spending — especially by the government — when official data are reported on Nov. 7, a senior Finance official and private sector economists said earlier this week.
Latest state data show:
• Total government expenditures recovered from a contraction in June to grow by 3.43% in July and by 8.78% in August — the fastest in six months — with primary expenditures (which strips out interest payments) picking up by 1.81% and then by 13.61%, respectively, in the same months;
• Consumers turned bullish for July-September after 12 months of pessimism, marking the best result in seven quarters, according to the Bangko Sentral ng Pilipinas’ third-quarter Consumer Expectations Survey which showed a 4.6% confidence index in the current quarter, marking the best result since the 9.5% recorded in 2017’s last three months;
• Cash remittances overseas Filipino workers (OFWs) — which fuels household spending that contributes about 70% to gross domestic product (GDP) — recovered in July from June’s drop to post the fastest growth in nine months at 7.5%.
For Undersecretary Gil S. Beltran, the Finance department’s chief economist, “Government expenditures (for July and August) may have increased GDP growth by 0.3% over the previous quarter.”
In an e-mailed response to a request for his assessment, Mr. Beltran added that “[h]ousehold spending may have rebounded in Q3” on bigger July remittances.
But while he noted that merchandise exports rose by 3.5% in July — “relative to -0.5% during the first half, thus, may push up GDP growth by 0.5% over the previous quarter” — “… we will need to get more info for better reading of Q3 growth.”
Socioeconomic Planning Secretary Ernesto M. Pernia said last week that third-quarter GDP should bare “higher performance… higher than the second quarter… higher than in the first semester.”
GDP growth crawled by 5.6% and by 5.5% in the first and second quarters, respectively, taking last semester’s average to 5.5% against an already reduced official 6-7% target for the entire 2019.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message that “[f]or 3Q 2019, infrastructure spending could grow to around 4-5% of GDP in view of the catch-up spending plan of the government to make up for the slower GDP growth in the first half.”
“Consumer/household spending could be higher at around 68-70% of GDP amid easing inflation and low interest rates that increase disposable incomes and spending power, as well as improved employment data and the positive effects of the continued growth in OFW remittances, BPO (business process outsourcing) revenues and tourism receipts.”
Noting that “level of government spending was critical to fixed capital and capital formation growth in the first half of 2019” which, in turn, are “crucial contributors to overall economic growth,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail that improved “government spending would be a major driver” this quarter.
At the same time, “robust domestic consumption would also be a huge factor… supported by declining annual increases in headline inflation, a steady remittances inflow growth and the continuing decline in unemployment.”
Increased state spending in July and August, he added, “may indeed impact economic growth for the third quarter and result in a higher GDP clip compared to previous 2019 quarters.”
“However, the speed at which spending is being rolled out and the spending catch-up needs to be faster to at least reach the bottom end of the government’s 2019 growth target of six percent, and reaching this minimum is becoming more challenging.
In a quick note he fired off to reporters when the Treasury bureau released July fiscal data last Monday night, Security Bank Corp. Chief Economist Robert Dan J. Roces had said that “[f]or the third quarter, external sources of growth such as trade and foreign direct investments will be hard-pressed to support growth.”
“Trade may still prove to be unreliable on the back of a contracting global manufacturing sector, while foreign investments may be slow to recover as businesses are absorbed by our neighbors such as Vietnam, India, and Taiwan; and also investors might be on a holding pattern at the moment until the CITIRA law is passed,” Mr. Roces explained, referring to a plan to slash corporate income tax rates while at the same time remove tax incentives deemed redundant and tighten rules for availing of remaining perks.
“This leaves household and government spending to be the primary drivers,” he said.
“Government spending will carry the heavier burden of driving Philippine economic performance not just for the third quarter but also for the rest of the year,” he added.
“Risks include slower household spending as overseas remittances are tied to the fortunes of global events.”
Hence, Mr. Roces said, “[h]itting the growth targets will prove to be increasingly challenging, if conditional upon the speed of project deliveries and infra spending.”