Increased government disbursements may boost Q3 GDP to 6.2%

MANILA, Philippines — Economic growth is seen to have accelerated to 6.2 percent in the third quarter as government spending picks up, according to London-based Capital Economics.

“The latest data suggest economic growth picked up in the third quarter. We have pencilled in GDP growth of 6.2 percent year-on-year for the third quarter, up from just 5.5 percent in the second quarter,” said the macroeconomy research firm in a new research brief.

A strong driver in the possible recovery is likely to have been increased government spending, which grew by by 39 percent year-on-year in September.

“Spending had previously been slow to rebound following the delayed passing of the 2019 budget in mid-April,” it said.

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.

The domestic economy, as measured by the gross domestic product (GDP), grew at a slower pace of 5.5 percent in the second quarter, as against the 5.6 percent growth in the first quarter and the 6.2 percent expansion in the second quarter of 2018.

The second quarter growth figure was the lowest in over four years, or since the 5.1 percent pace in the first quarter of 2015.

Capital Economics also sees headline inflation nudging down further in the coming months because of falling fuel prices.

Inflation fell to a 40-month low of 0.9 percent in September as the cost food, housing and utilities contracted.

“(Inflation) is likely to have nudged down further in October due to another drop in fuel price inflation. While this will probably mark a trough, the headline rate is likely to remain below the mid-point of the central bank’s (BSP) inflation target for some time,” said Capital Economics.

The deceleration in inflation has so far given the central bank room to loosen policy to support the economy.

The Philippine Statistics Authority (PSA) will announce the October inflation figures on Nov. 5 and the third quarter economic growth figures on Nov. 7.

The Bangko Sentral ng Pilipinas (BSP) has so far slashed interest rates by 25 basis points to four percent in its September meeting.

Interest rates have been cut by a cumulative 75 basis points since the start of the year.

“The dovish tone of the central bank’s statement suggests further easing is likely over the coming months,” said Capital Economics.

The BSP also announced recently another 100 basis point cut to the reserve requirement ratio (RRR) of banks which will be effected in December.

This will take the RRR to 14 percent by the end of the year.