Eco­nomic growth closes in on tar­get

GROSS DO­MES­TIC PROD­UCT QUAR­TERLY PER­FOR­MANCE

Business World - - Front Page - By Beatrice M. Laforga

THE COUN­TRY’s eco­nomic growth in the July-Septem­ber pe­riod beat mar­ket ex­pec­ta­tions as it re­bounded from the first and sec­ond quar­ters and from a year ago on the back of big­ger gov­ern­ment ex­pen­di­tures that added to the lift from ro­bust house­hold spend­ing, the Philip­pine Sta­tis­tics Au­thor­ity (PSA) re­ported on Thurs­day.

Gross do­mes­tic prod­uct (GDP) growth clocked in at 6.2%, mark­ing the fastest clip this year so far and pick­ing up as well from the year-ago six per­cent.

That com­pares to the six per­cent me­dian of 13 economists

Busi­nessWorld polled late last week and the Bangko Sen­tral ng Pilip­inas’ (BSP) 5.8-6% es­ti­mate range.

Late en­act­ment of this year’s na­tional bud­get and a ban on new pub­lic works 45 days ahead of the May 13 midterm elec­tions re­sulted in sub­dued in­fra­struc­ture spend­ing that left last se­mes­ter with a muted 5.5% GDP ex­pan­sion against the gov­ern­ment’s 6-7% tar­get for the year.

The lat­est pace brought yearto-date GDP growth to 5.8%, closer to the lower end of the ful­lTHE

year goal though still a slow­down from the past year’s 6.2%.

“This means that the Philip­pine econ­omy will have to ex­pand by at least 6.7% in the last quar­ter of the year to meet the low end of the full-year tar­get of 6-7% for 2019 — a chal­lenge that we are con­fi­dently tak­ing on,” So­cioe­co­nomic Plan­ning Sec­re­tary Ernesto M. Per­nia said in a press con­fer­ence in Pasig City.

He noted that, in Asia, the Philip­pines placed be­hind Viet­nam’s 7.3% but out­paced China’s six per­cent, In­done­sia’s five per­cent and In­dia’s ex­pected third-quar­ter growth “of be­low six per­cent.”

For BSP Gov­er­nor Ben­jamin E. Dio­kno, “third quar­ter GDP growth of 6.2%… sug­gests that the Duterte ad­min­is­tra­tion’s catch-up [spend­ing] plan is work­ing.”

“The six-per­cent full-year GDP growth tar­get is a tall or­der af­ter a slower-than-ex­pected first half, but still doable.”

Mr. Dio­kno, who has said that the cen­tral bank will likely pause mon­e­tary pol­icy eas­ing af­ter cut­ting this year bench­mark rates by a to­tal of 75 ba­sis points and banks re­serve re­quire­ment ra­tio by 400 bp, noted that “cur­rent mon­e­tary pol­icy re­mains ap­pro­pri­ate. The econ­omy is back on tract to a strong growth path.” The cen­tral bank is sched­uled to hold its re­main­ing pol­icy re­views for 2019 on Nov. 14 and Dec. 12.

Mr. Per­nia noted that “the stronger growth in pub­lic spend­ing in the third quar­ter con­trib­uted sig­nif­i­cantly to our Q3 per­for­mance.”

FAC­TORS

Gov­ern­ment fi­nal con­sump­tion ex­pen­di­ture picked up by 9.6% from 7.4% and 7.3% in the first and sec­ond quar­ters, re­spec­tively, though still lagged be­hind the 14.3% logged in last year’s third quar­ter.

The Bud­get depart­ment has re­ported that the gov­ern­ment spent about 17% more at P1.04 tril­lion in the third quar­ter from P886.2 bil­lion a year ear­lier, a marked im­prove­ment from the 2.3% con­trac­tion in the sec­ond quar­ter and 0.8% in the first quar­ter. In­fra­struc­ture spend­ing alone amounted to P234.8 bil­lion in the third quar­ter, 7.7% more than the P218.1 bil­lion recorded in the same pe­riod last year.

House­hold fi­nal con­sump­tion ex­pen­di­ture re­cov­ered to a 5.9% in­crease from the pre­ced­ing quar­ter’s 5.5% and the past year’s 5.3%.

Cap­i­tal for­ma­tion, how­ever, weighed on growth with a 2.1% con­trac­tion that was nev­er­the­less smaller than the sec­ond quar­ter’s 8.5% drop.

Un­der this ex­pen­di­ture cat­e­gory, fixed cap­i­tal for­ma­tion turned around to a 2.1% growth from the pre­ced­ing quar­ter’s 4.6% drop, though it was still slower than the past year’s 16.6% in­crease. Durable equip­ment con­tracted by 9.1%, though smaller than the sec­ond quar­ter’s 12.8% drop, while con­struc­tion surged by 17.3% from the sec­ond quar­ter’s 2.8% in­cre­ment and the year-ago 13.3%.

“Con­struc­tion ac­tiv­ity was the bright spot for over­all fixed cap­i­tal in­vest­ment, post­ing a strong 17.3% ex­pan­sion but ul­ti­mately was un­able to lift the seg­ment into pos­i­tive ter­ri­tory. Cap­i­tal for­ma­tion ac­counts for roughly 25% of the econ­omy and as a whole, it weighed down on growth by 0.56 per­cent­age points,” Ni­cholas An­to­nio T. Mapa, se­nior econ­o­mist at ING Bank N.V. Manila Branch, said in an e-mail.

For UnionBank of the Philip­pines, Inc. Chief Econ­o­mist Carlo O. Asun­cion, the drop in cap­i­tal for­ma­tion re­flected for­eign in­vestors wait­ing “on the side­lines” es­pe­cially in terms of busi­ness ex­pan­sion as the gov­ern­ment over­hauls fis­cal in­cen­tives.

Mr. Asun­cion said this was shown in the con­tin­ued de­cline of for­eign di­rect in­vest­ments, which lat­est data bared a 40.59% drop in July to $543 mil­lion from $914 mil­lion a year ago.

“This cap­i­tal for­ma­tion con­trac­tion will bear on fur­ther eco­nomic growth. In­vest­ments are im­por­tant to em­ploy­ment and in­creased con­sump­tion. Note that 60-70% of the Philip­pine econ­omy is re­liant on do­mes­tic con­sump­tion,” he said in a mo­bile phone mes­sage yes­ter­day.

There was not much lift from for­eign trade, how­ever, as ex­port growth slowed to a nearly flat 0.2% from 4.8% in the sec­ond quar­ter and 14.2% in the third quar­ter. Un­der this item, mer­chan­dise ex­ports ac­tu­ally fell by 1.3% com­pared to the sec­ond quar­ter’s 4.9% and third quar­ter 2018’s 16.8%, while ser­vice ex­port growth picked up to 8.1% from 4.3% in the sec­ond quar­ter and third quar­ter 2018’s 1.9%.

In a note sent to jour­nal­ists on Thurs­day, HSBC Global Re­search Econ­o­mist Noe­lan Ar­bis said “pri­vate con­sump­tion and fixed in­vest­ment are both likely to drive growth faster in 4Q, on a se­quen­tial and sea­son­ally ad­justed ba­sis (high base ef­fects could lead to a lower y-o-y read­ing)”.

Cap­i­tal Eco­nomics Asia econ­o­mist Alex Holmes, how­ever, doubts that growth re­bound can be sus­tained, say­ing in a note: “We don’t think Q3’s strong fig­ures mark the start of a sus­tained re­bound.”

“On the plus side, con­sump­tion should con­tinue to grow at a de­cent rate, helped in part by a sharp slow­down in in­fla­tion, which will have boosted con­sumers’ pur­chas­ing power.” — with in­put from

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