S&P says Q2 slack a mere ‘setback’

S&P GLOBAL RATINGS has kept its 6.7% Philippine growth forecast this year despite last quarter’s slower-than-expected expansion, amid signs that the economy’s “strength” remains intact.

“Despite the Q2 setback in the headline GDP (gross domestic product) figure, the continued impressive strength of the domestic economy leads us to hold on to our 6.7% growth forecast for now,” the credit rater said in its monthly report published last week.

The Philippine economy grew by six percent in April-June, settling below market expectations of 6.8% and the first quarter’s downward-revised 6.6%. This brought last semester’s growth to 6.3%, well below the state’s 7-8% growth goal for 2018 and the yearago 6.6%.

GDP expansion eased to its weakest pace in three years due to slower growth of consumer spending, although this segment was offset by a surge in state spending and investments. By industry, exports contracted from a year ago while farm output was flat, according to the Philippine Statistics Authority.

Capital formation grew 20.7% last quarter, which is expected to be sustained for the rest of the year.

While the slower overall economic growth was “unexpected,” there are signs that above-six percent momentum can still be sustained.

“[T]he breakdown suggests continued strength in the domestic economy, with consumption growth steady and investment growth surging to 20.7%. This strength generated a steep rise in imports, causing net exports to significantly detract from the headline number,” S&P noted.

To achieve at least seven percent growth, the economy needs to expand by a blistering 7.7% this semester compared to the year-ago 6.8% — a difficult but still “possible” feat, according to Finance Undersecretary Gil S. Beltran.

A number of bank economists have already downgraded their GDP estimates for the Philippines following the disappointing second-quarter figure, while other credit raters said they will review their forecasts to factor in the latest print.

On the other hand, S&P sees that inflation could remain high over the next few months. Still, it recognized that price spikes triggered by new taxes that took effect this year are starting to ease.

“Regarding inflation, the one-off effects of the tax reform are probably starting to dissipate,” S&P said.

“But with global crude prices and the recent typhoon, food and fuel prices are likely to keep prices high in the next few months before peaking.”

Inflation hit a fresh multi-year-high 5.7% in July,pulling the year-to-date average to 4.5% against the central bank’s 2-4% target range for full-year 2018.

The Bangko Sentral ng Pilipinas (BSP) sees fullyear inflation hitting 4.9%, with signs that prices will accelerate further in August or September before easing closer to four percent.

The debt watcher noted that supply-side factors — particularly food and fuel — have been pushing prices up.

The BSP has raised benchmark interest rates by 100 basis points cumulatively this year in three consecutive policy reviews in a bid to temper price spikes.

S&P sees 2018 inflation averaging 4.3% before settling lower at 3.4% in 2019.