ANALYSTS WEIGH IMPACT OF STRONG EXPORTS, WEAK GOVT SPENDING ON Q3 DATA

GDP forecast up 5.7 – 7.0%

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Analysts offered mixed views on growth in the Philippine economy in the third quarter ahead of today’s release of official data, projecting an expansion in gross domestic product (GDP) of between 5.7 percent and 7 percent.

The divergence in expectations stretches from the positive impact of strong exports to the downside risk of slow government spending.

Four out of nine analysts polled by The Manila Times see GDP accelerating in the third quarter, while three said they expect a slowdown and two estimate a stable rate near the 6.4 percent recorded in the second quarter of the year.

Upbeat outlook
Taking the most optimistic view is Maybank Kim Eng analyst Luz Lorenzo, forecasting third-quarter GDP growth at 7 percent on the back of robust domestic demand and strength in net exports.


Patrick Ella, economist at Security Bank Corp., said the bank is forecasting a 6.8 percent economic expansion during the quarter, citing strong consumption, remittances and exports, and moderating inflation as factors that may offset slow government spending.

“While there is anemic government spending for the quarter, as well as slowing industrial production, we are still seeing strong consumption, remittance, exports and slowing inflation. Peso weakness should also be positive for dollar revenue earners like BPO [business process outsourcing]and remittances,” Ella said.

Analysts at Singapore banking giant DBS project the third-quarter GDP to show growth remaining firm at 6.7 percent year-on-year, faster than the 6.4 percent posted in the previous quarter.

“While we earlier projected GDP growth just short of 7 percent in the third quarter, fiscal spending proved to be quite a drag in the period.

Despite fiscal revenues rising some 15 percent in the third quarter, spending has actually fallen by about 2 percent. This is also likely to mean a pullback in private investment, particularly given the reported delays in some infrastructure projects,” the bank said.

However, DBS noted that the two key supporting pillars of the economy—private consumption and exports—remain robust.

The bank said private consumption is likely to remain resilient in the period, boosted by OFW remittances that reached a record high in September, while strong export growth during the period also means that contribution from net exports to overall GDP growth is likely to match the two-year high seen in the second quarter.

Rahul Bajoria, economist at UK-based investment bank Barclays, pegged the quarter’s GDP growth at 6.5 percent, but did not provide a basis for his projection.

Accord Capital Equities Corp. analyst Justino Calaycay suggested growth will remain close to the previous quarter’s 6.4 percent level, well within the 6.2 percent to 6.5 percent range as a result of steady consumer spending.

Economists at the Bank of the Philippine Islands (BPI) also see the rate around a 6.4 percent improvement, with a sharp slowdown in government spending factored in.

“The favorable base effect and improving exports performance for third-quarter growth was probably diluted by the sharp slowdown in government spending and the deceleration in the manufacturing sector’s performance,” said BPI lead economist Emilio Neri Jr.

Nicholas Antonio Mapa, associate economist at BPI, said they see smaller contributions to growth from both the agricultural sector and the industry sectors, but expect a rebound in the services sector as financial services and retail trade provide the boost.

“Once again, the weakest link will be government final consumption expenditure, which is expected to contribute 0.0 percentage points to the overall growth number, as it did in the second quarter,” Mapa said.

The not-so-optimistic
ING Bank Manila said it expects GDP growth for the third quarter to be more moderate at 6.3 percent than the pace of economic activity a year earlier and that of the previous quarter.

“Underspending by government is one cause of slower growth. Weak agriculture performance in the third quarter is another. Growth of OFW [overseas Filipinos workers]remittances, manufacturing indices and exports are weaker than the third quarter of 2013 performance,” said Joey Cuyegkeng, senior economist at ING Bank Manila.

Victor Abola of the University of the Asia and Pacific forecast a third-quarter GDP improvement at 6 percent, pointing to weak government spending, much weaker manufacturing gains during the period, and a decline in agricultural output because of weather disturbances as causes for a slowdown.

The weakest forecast comes from global bank HSBC, which said growth likely slowed to 5.7 percent year-on-year, expecting that a 1.8 percent contraction in government spending dragged down the overall growth momentum.

HSBC’s projection is significantly lower than the 7 percent rise in GDP achieved in the same quarter a year earlier, and the 6.4 percent recorded in the second quarter of 2014.

“With capital goods imports declining, we expect investment to be sluggish; as such, despite strong private spending and better net exports, GDP is expected to decelerate,” Trinh Nguyen, economist at HSBC, said.

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