Q2 GDP grew on election spending – analysts


Estimates range from 6.1% to 7.2%
THE economy likely expanded in the second quarter of 2016 year-on-year, boosted by election spending, higher government spending, and private consumption, according to analysts polled by The Manila Times.

These growth-positive inputs likely diminised the negative impact of weak exports and frail output from the agriculture sector.

The analysts are betting that the economy as measured by gross domestic product (GDP) grew by 6.1 percent to 7.2 percent in April to June, up from 5.8 percent a year earlier.

Official first-quarter GDP data is scheduled for release by the Philippine Statistics Authority this Thursday.

The GDP rate expanded by 6.9 percent in the first quarter of the year, the fastest in nearly three years and estimated in Asia in January to March.

The Duterte administration has set a GDP growth target of 6 percent to 7 percent this year, compared with the actual 5.8 percent for the whole of 2015.

ING Bank Manila senior economist Joey Cuyegkeng was the most optimistic among the analysts polled. He estimated the grew between 7.1 percent and 7.2 percent in the three months to June, largely on election-related spending.

University of Asia and the Pacific (UA&P) economist Victor Abola estimated the economy expanded by 7.1 percent, led by the industrial sector.

Strong output in manufacturing and construction, particularly government-led spending on infrastructure, offset a slightly negative output in agriculture, he said.

The economy remains driven by the demand side, such as capital formation and consumption spending.

Ateneo de Manila University economist Alvin Ang said GDP grew by 7 percent, “… fueled by election spending and better government spending.”

Natixis senior economist for emerging Asian marketsTrinh Nguyen is also betting that election spending has had a positive impact on GDP. Her bet is at 6.9 percent.

“Credit growth, too, has been picking up. After the strong performance of consumption in first half, we expect investment to catch up, especially as it was on pause in first half due to uncertainty over the election results,” she said.

Bank of the Philippine Islands (BPI) and Moody’s Analytics shared the same forecast of 6.8 percent, with BPI associate economist Nicholas Antonio Mapa seeing the services sector driving the economy.

The expenditure side would reflect strong consumption, coupled with election-related support, plus the continuation of the investment cycle as evidenced by the strong car sales reported by Campi or the Chamber of Automotive Manufacturing of the Philippines Inc., Mapa said.

Vehicle sales rose to 29,967 in July, up 22 percent from 24,569 units year-on-year, according to the automotive chamber.

“Low inflation and interest rates helped boost consumption further with remittances still up around 7 percent in peso terms. Government spending also clocked in at 14 percent year-on-year,” Mapa noted.

For Moody’s Analytics private consumption and investment were the main drivers of the Philippine economy “… and they likely shook off any uncertainty stemming from the presidential election, which occurred in the second quarter.”

It gave a mixed account of foreign trade, noting that merchandise exports have been on the decline due to weak weak global demand, particularly from Japan, China, and Europe.

“In contrast, service exports have been increasing well as a result of foreign firms outsourcing business services to the Philippines,” it Moody’s noted.

Banco de Oro Inc. chief market strategist Jonathan Ravelas placed the second quarter GDP at 6.7 percent without elaborating on his forecast.

But HSBC and Barclays gave an estimate of 6.6 percent. HSBC economist.

HSBC’s Joseph Incalcaterra said the Philippines remained resilient, and tagged the contribution of election spending which likely fueled private consumption. At the same time he cited the strong growth of remittances, particularly in peso terms.

A relatively large contribution from fixed investment stemming from the acceleration in public infrastructure spending was expected, Incalcaterra noted.

“Although the trade deficit likely widened during the quarter, this drag on growth will be more than offset by robust domestic demand,” he added.

Barclays economist Rahul Bajoria did not explain the bank’s position on the Philippine economy.

Chief economist Rajiv Biswas of IHS Global Insight Asa Pacific expects Philippine output growth at 6.5 percent “… boosted by rapid growth in domestic demand and industrial output.

“Consumption spending has been underpinned by buoyant consumer confidence, after four successive years of strong GDP growth,” he said.

However, Biswas noted the overall GDP growth in the second quarter was constrained by falling exports and surging imports, which placed a drag on expansion.

He pointed out that imports have been strong, underpinned by rapid expansion in consumer spending and investment.

The least optimistic views, at 61. percent, came from Deutsch Bank and DBS.

Deutsch Bank economist Diana del Rosario noted a weaker factory output and a wider trade deficit in April to June.

“Government consumption and construction activity also likely expanded more slowly than in the previous quarter,” she said.

DBS economist Gundy Cahyadi noted the export numbers were poor even if other indicators suggested strong investment growth continued from the first quarter—probably due to election spending.

“The frontloading of investments is likely to have continued in the second quarter,” he said.


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