Reenacted budget saps economic growth in Q1

MANILA, Philippines (Update 2, 11:41 a.m.) — The Philippine economy lost steam in the first quarter of 2019 and grew to its slowest pace in four years after weak state spending due to delays in the passage of the national budget failed to power growth, the government reported Thursday.

Gross domestic product — or the value of all finished goods and services produced in the country — expanded 5.6% in the first three months of 2019, slower than 6.3% in the previous quarter and 6.5% recorded in the comparable period last year.

The latest reading was the slowest since 5.1% registered in the first quarter of 2015 and settled below the state’s 6%-7% target for 2019.

The gloomy GDP figure also failed to meet market expectations. After the release of downbeat GDP report, the bellwether Philippine Stock Exchange index fell 2%.

Reenacted budget weakens growth

At a press conference, Socioeconomic Planning Secretary Ernesto Pernia blamed Congress’ failure to pass the 2019 national budget on time for the economy’s disappointing performance in the first quarter.

A spat among lawmakers delayed the approval of the new outlay, leaving fresh projects unfunded and crimping state spending, which accounts for a fifth of the country’s GDP. The budget bill was signed into law in mid-April.

Public spending grew 7.4% in the first quarter, lower than 13.6% in the same period in 2018, government data showed.

According to Pernia, the Philippine economy would have clocked a forecast-topping growth of 6.6% had the government operated under the 2019 budget.

To reach the state’s full-year target, the economy would have to expand by an average of 6.1% over the next three quarters, Pernia also said, adding that the government is pinning its hope on election-related spending to charge growth.

Meanwhile, household consumption, which grew 6.3% amid benign inflation, is expected to remain robust, Pernia said.

‘Don’t expect a sustained rebound’

Commenting on the slower GDP growth in the first quarter, London-based Capital Economics said “a sustained rebound” is unlikely amid headwinds.

“Hopes for a sustained rebound are likely to be disappointed. A tough external environment and the lagged effects of monetary tightening mean growth is likely to struggle to beat 6% this year,” Capital Economics said.

“What’s more, weak export growth should continue to drag on growth. We expect global growth to weaken further over the coming quarters, which will weigh on external demand. The likely intensification of the US-China trade war would be an additional headwind,” it added.

The Bangko Sentral ng Pilipinas’ Monetary Board will meet Thursday afternoon to review policy settings. The central bank tightened monetary policy by a cumulative 175 basis points to 4.75 percent last year after inflation hit a near-decade high.

BSP Governor Bejamin Diokno — who is widely seen by the market as a pro-growth central bank chief — recently said there is room to cut rates, but stressed that the timing and magnitude of any actions would be “data dependent.”