Modest gain in Q2 GDP growth seen

MANILA, Philippines — Economic forecasters have penciled a modest improvement in gross domestic product (GDP) growth in the second quarter, with estimates ranging from 5.8 percent to six percent, still higher than the 5.6 percent pace in the first three months.

London-based think tank Capital Economics expects the Philippine economy to have grown by only 5.8 percent in the second quarter, citing the weak manufacturing output and government underspending as the national budget was passed only in mid-April.

Consumer spending, however, will remain as the main driver of growth on the back of the continued slowdown in consumer prices, it added.

It noted that the effect of last year’s rate hikes continues to move through the economy, weighing on growth as reflected in slower bank lending.

Key economic data will be released next week including the second quarter economic growth figures, July inflation, June industrial output, June external trade data, and the central bank’s interest rate decision.

The firm expects the Bangko Sentral ng Pilipinas (BSP) to cut main policy rates by 25 basis points in its meeting on Thursday as “price pressures have dropped.”

Inflation fell sharply in June to 2.7 percent, from 3.2 percent in May.

“The rate cut by the Fed earlier this week has also created some breathing room for central banks across the region to ease policy,” the firm said.

For Security Bank Corp., GDP growth stayed below six percent in the second quarter at 5.9 percent from a four-year low of 5.6 percent in the first quarter.

 Robert Dan Roces, chief economist at Security Bank, said economic expansion in the second quarter rebounded following a sluggish first quarter.

“However, leading indicators suggest otherwise and as such Q2 is bound to be unremarkable,” Roces said.

He added there was reduced government spending suggesting that the effects of the delayed passage of the 2019 national budget crept into the second quarter.

Data showed government spending slipped by 2.3 percent to P812.2 billion in the second quarter despite the catch-up spending plan post-elections to mitigate the impact of the delayed budget.

“In fact, government spending was at surplus for April and May, and only reverted to deficit by June, suggesting that the effects of the delayed budget have crept into the quarter,” he said.

Roces added the growth in imports of capital goods between April and May was relatively flat suggesting tepid development in the government’s Build Build Build program.

“Overall, this means that Q2 growth will be hard pressed to reach or exceed six percent, with lackluster government spending continuing to be the main drag; despite a rebound in private consumption because of tapering inflation,” he said.

Meanwhile, two other groups expect the economy to expand at a faster pace of six percent in the second quarter, supported by strong consumption and government spending.

Market intelligence firm IHS Markit said the Philippines is among the countries that can be expected to buck the global growth downtrend.

“Second quarter gross domestic product in the Philippines is expected to have accelerated from 5.6 percent to an annual rate of six percent,” the firm said.

In a separate brief, First Metro Investment Corp. (FMIC) said the expected rebound in the second quarter can be expected to continue in the succeeding quarters.

“Philippine economic growth should rebound by six percent year-on-year in the second quarter and accelerate further for the rest of 2019 supported by the three domestic demand engines — consumer, government and investment spending —revving up to high gear,” said FMIC.

It noted the continued deceleration of consumer prices as well as the sustained strength of remittance inflows. FMIC sees headline inflation falling below two percent in August largely because of base effects as well as lower food prices. – With Lawrence Agcaoili