Q3 growth still below target’

MANILA, Philippines — The Philippines likely continued to deliver below six percent gross domestic product (GDP) growth in the third quarter as economic expansion eased in the first half of the year due to soft global markets amid the US-China trade war, the tightening cycle via higher interest rates and delayed passage of the 2019 national budget.

Security Bank economist Robert Dan Roces said the country’s GDP growth recovered to 5.8 percent in the third quarter from a four-year low of 5.5 percent in the second quarter.

“The ghosts of the delayed passage of the national budget for 2019 still continue to haunt economic growth as we expect Q3 GDP to rebound to 5.8 percent,” Roces said.

Roces said leading indicators suggest an otherwise unremarkable recovery for the quarter as sluggish growth in capital goods and a slowing imports sector offset gains from higher household consumption and a late surge in public spending seeking to play catch-up after getting derailed by the late budget.

Consumption was fueled by easing inflation that allowed the Bangko Sentral ng Pilipinas (BSP) to cut interest rates by 75 basis points so far this year, partially unwinding the tightening episode that saw benchmark rates rise by 175 basis points last year.

The BSP expects inflation to settle between 0.5 percent and 1.3 percent in October from a 41-month low of 0.9 percent in September due to lower domestic oil and rice prices.

Roces said private investments would still be a source of weakness due to external uncertainties after plunging in the second quarter of the year.

 Jun Trinidad, economist at Philippine National Bank, said fiscal stimulus helped elevate growth closer to six percent in the third quarter.

“Disbursements mainly by the national government in line with its implementation of infrastructure projects, wage bill, maintenance operations, etc., representing the major fiscal accounts that contribute directly to GDP growth, have risen in September,” Trinidad said.

Latest data from the Bureau of the Treasury showed expenditures jumped 31.1 percent in September and helped strengthen fiscal stimulus and implied a larger contribution to third quarter growth.

“In 3Q19, national government disbursements grew by nearly 10 percent more than its 3Q18 threshold, likely enabling GDP growth to close in on six percent. Disbursements at the core of primary expenditures, staying in the fast lane provides a strong platform for 4Q19 GDP growth to exceed six percent,” he said.

Trinidad said more than six percent growth is still a possibility but this upside third quarter growth surprise might come from muted imports on the net external trade segment.

BSP Deputy Governor Francisco Dakila earlier said the country’s GDP growth likely picked up to a range of 5.8 to six percent for the third quarter of the year.

Dakila said the growth could further accelerate to 6.5 percent in the fourth quarter as easing inflation could boost consumption.

 He said full year growth would be closer to the lower end of the government’s six percent to seven percent target.