Nomura sees Q2 economic growth at 5.8%

Nomura Securities Ltd. expects the Philippine economic growth to fall below six percent in the second quarter due to the trade war between the US and China, as well as the delayed passage of the 2019 national budget.

Euben Paracuelles, economist at Nomura, said the GDP growth in the second quarter may reach only to 5.8 percent, slightly higher than 5.6 percent growth in the first quarter.

“The government’s monthly fiscal surpluses in April and May support our second quarter GDP growth forecast of 5.8 percent, which is only a marginal improvement from the growth of 5.6 percent in the first quarter,” Paracuelles said.

He said the GDP growth forecast in the second quarter considered growth in government spending and investments.

“Our second quarter forecast takes into account government spending and total investment growth that are still moderating, but by less than in the first quarter. There are also additional headwinds from escalating US-China trade tensions, which are hurting exports across the region,” he said.

According to Paracuelles, the GDP growth in the first half is well below the government’s full year six to seven percent target, which has already been scaled down from seven to eight percent earlier.

The Philippines reported a small fiscal surplus of P2.6 billion in May after a record-high surplus of P86.9 billion in April due mainly to the delayed approval of the 2019 budget that severely curtailed spending disbursements.

Paracuelles said the surplus was against Nomura’s forecast of a small deficit of P8.9 billion, implying that the fiscal tightening in the first quarter has continued.

On a 12-month rolling sum basis, Paracuelles said the fiscal deficit dropped to around 2.3 percent of GDP in May from 3.2 percent last year, implying the significantly negative fiscal impulse on growth.

“This suggests that the drag from declining public sector construction activity in the first quarter GDP growth looks unlikely to reverse materially in the second quarter, despite the budget enactment in mid-April,” he said.