Subdued GDP growth seen in Q2

HI results likely below 6% — ING

The country’s gross domestic product (GDP) growth in the first half of the year likely remained below six percent amid subdued expansion in the second quarter, Dutch financial giant ING Bank said.

Nicholas Mapa, senior economist at ING Bank Manila, said the country likely failed to meet the six to seven percent growth target set by economic managers for the first semester.

“With Q2 GDP expected to remain subdued on lingering effects of rate hikes and budget delays, first half growth will likely slip below six percent as the speed bump hits home,” Mapa said.

He added the country posted a disappointing GDP print of 5.6 percent in the first quarter of the year from 6.3 percent in the fourth quarter of 2018 as government outlays cratered on the budget delay, while capital formation lost its luster due to the tightening episode by the Bangko Sentral ng Pilipinas (BSP) last year.

“Although household consumption was revived by stalling inflation, it failed to lift overall growth above six percent as the trade gap widened,” Mapa said.

The national government operated on a reenacted budget as legislators failed to pass the 2019 General Appropriations Act on time.

Mapa said the delay caused a stark drop in government expenditure with the hiring freeze and the deferral of projects and salary adjustments.

“The legislative body finally passed the 2019 budget bill in early May, however Q1 growth and a good portion of Q2 growth had been affected with the year-to-date budget deficit a mere P809 million compared to the P138.7 billion deficit posted in the same period of 2018,” he said.

The Department of Finance (DOF) said the budget delay resulted in foregone expenditures of roughly P1 billion daily that could have boosted GDP by a full percentage point in the first quarter.

However, Mapa said GDP growth is seen accelerating in the second half of the year as the government tries to catch up and achieve its infrastructure spending and the monetary support via lower interest rates.

“H2 growth, however, appears to offer some hope as the Philippines attempts to achieve escape velocity and get growth back on a higher trajectory of six to seven percent,” he said.

The BSP’s Monetary Board slashed interest rates by 25 basis points last May 9 due to easing inflation and slower than expected GDP growth in the first quarter and lowered the reserve requirement ratio for big and mid-sized banks by 200 basis points and for small banks by 100 basis points.

Last June 20, the central bank hit the pause button to assess the impact of the monetary policy actions that reversed the tightening cycle that saw interest rates rise by 175 basis points last year.

“BSP trimmed borrowing costs by 25 bps in May and is poised to deliver additional easing now that inflation is back within target, which could revive capital formation further. Lower policy rates working in tandem with decelerating inflation will also boost already potent household consumption while the government implements catch up spending to complete the push for escape velocity,” Mapa said.