Philippine economy moves past speed bumps – ING

MANILA, Philippines — The Philippine economy is now over speed bumps that slowed down growth in the first semester of the year, said an economist of ING Bank Manila.

During an economic briefing late Thursday, ING Bank Mania senior economist Nicholas Mapa said the recent rate cuts implemented by the Bangko Sentral ng Pilipinas (BSP), the low inflation environment and acceleration of government spending would give the domestic economy the steam to attain a full-year growth rate of six percent for 2019.

This entails a growth rate of 6.3 percent in the third quarter and 6.4 percent in the fourth quarter after growth rates of 5.6 percent in the first quarter and 5.5 percent in the second quarter.  “We’ve passed the speed bump that we alluded to in the first half of the year after government spending weakened and capital formation contracted. BSP started cutting policy rates by 75 basis points year-to-date so we can hopefully see a recovery in capital formation,” Mapa said.

“We should improve our growth prospects moving forward. Now that we’ve passed this speed bump I think we’re going to chase six percent growth and a strong finish for this year,” he added.

As the domestic economy is not heavily reliant on exports, growth is largely supported by investments, government expenditure and household consumption.

Economic growth shifted to an even lower gear in the second quarter, falling way short of forecasts, due to the spillover effects of the budget delay and the election ban on infrastructure projects.

During the period, capitol formation contracted particularly on the government side.

Consumer confidence was also hit as seen in the slowdown in household consumption.

“In the second quarter, capital formation was negative because of the effect of the rate hike last year. They say a rate hike today hurts nine months down the road. We are still feeling that in capital formation. With the BSP cutting rates, hopefully there is some effect,” he said. 

Mapa said the acceleration in government spending and policy easing will give government projects and private sector investment the momentum throughout the rest of the year until 2020.

“With growth expected to recover in the second semester, BSP can be expected to cut rates early next year or maybe even squeeze in another rate cut before the end of the year. It all depends on the inflation dynamics as well as third quarter GDP numbers,” he said.