Q3 economic growth seen higher at 5.8-6.5%

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The Philippine economy likely strengthened in the third quarter, analysts polled by The Manila Times said, with robust demand, ramped-up government spending and strong services and industry sectors offsetting weak exports and agricultural output.

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Gross domestic product (GDP) growth may have accelerated by 5.8 percent to 6.5 percent in July to September period, the analysts said, up from the second quarter’s 5.6 percent and the 5.3 percent recorded a year earlier.|

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Official third-quarter GDP data is scheduled to be released this Thursday by the Philippine Statistics Authority. Growth so far for the year has fallen below the government’s 7 percent to 8 percent target—earlier blamed on an exports dip and weak state spending.

An uptick is expected to boost domestic markets, although observers noted that the outlook for the rest of the year could be clouded by continued global uncertainty, recently heightened by a spate of terrorist attacks worldwide.

Strong services, industry
The most optimistic view for third quarter GDP was held by Victor Abola of University of Asia and the Pacific, who said the quarter likely saw 6.5 percent growth based on strong performances by the industry and services sectors.

“Industry will be powered by construction, which I expect will increase by 25 percent considering the estimated 56 percent growth in public construction (infrastructure spending). Manufacturing recovered in September and for the whole quarter was better than the second quarter,” Abola said.

Meanwhile, ANZ Research Asean and Pacific economist Eugenia Victorino said private consumption growth would have allowed Philippine GDP to expand by 6.3 percent in the third quarter.

“Private consumption growth is holding up, leading to a robust growth in sales of motor vehicles. Credit growth is sufficiently supportive. On a sequential basis, we see growth slightly easing to 1.5 percent quarter-on-quarter, seasonally adjusted,” she said.

Analysts at the Bank of the Philippine Islands (BPI) also forecast a 6.3 percent expansion due to sustained consumer spending, investments and a renewed push from the government side.

Robust domestic demand and still low borrowing costs will help drive household consumption expenditures and investments, the BPI analysts noted, while the services sector is seen to be a stable source of growth as several corporates have reported decent third quarter earnings.

The industrial sector may also continue to be a positive influence on the overall GDP print with construction and manufacturing posting modest gains, they added.

The analysts said third-quarter growth would rebound from its current sub-6 percent results with the national government ramping up spending in the final months of the current administration, in stark contrast to a contraction posted in the same period in 2014 at the height of the Disbursement Acceleration Program (DAP) debacle.

“After struggling to disburse funds, the national government appears to have regained its bearings and has shown renewed resolve to complement the rapid private sector expansion,” they said.

The Aquino administration, which has made infrastructure development a priority but struggled to launch and sustain projects, will end its term next year. The DAP, which it launched in 2011 as a budget reform measure, was declared unconstitutional by the Supreme Court.

Drag from exports, El Niño
On the other hand, the BPI analysts said the trade sector was continuing to feel the heat from slowing global demand, with exports having contracted by 6.9 percent and the July to August trade balance posting a deficit of $1.842 billion.

“We may see a drag from net exports anew,” the said.

The El Niño weather phenomenon, meanwhile, will continue dampening an already ailing agricultural sector although the effects “will be difficult to estimate,” they said.
“[A] recent spate of bad weather is seen to whittle down agricultural production further,” the analysts added.

Also sharing the same forecast of 6.3 percent was Patrick Ella, economist at Security Bank Corp.

Standard Chartered Bank economist Jeff Ng, meanwhile, expects GDP growth to have improved to 6.2 percent in the third quarter, likely supported by domestic demand.

“Import growth remained resilient, given the encouraging demand for consumer and raw-material imports. Export growth has weakened in recent months; September numbers were particularly weak,” he noted.

By sector, Ng said manufacturing and services likely bolstered growth during the quarter while industrial production data showed that production may have bottomed out compared to the April-June period.

Capital Economics also said third quarter growth could have picked up to 6.2 percent after a relatively weak first half.

“Our GDP tracker, which is compiled using a number of low- profile monthly indicators, is pointing to growth of just over 6 percent,” it said.

Significant role for govt
Singapore-based DBS said third quarter GDP data would likely show growth returning to 6 percent territory.

“Even if low base effects might have played a part, it is no surprise that domestic demand remains robust. The government plays quite a significant role on this front,” DBS analysts said.

They noted that fiscal spending accelerated during the period, growing by close to 20 percent and bringing the year-to-date expansion to 12 percent. After two consecutive years of 5 percent growth, fiscal spending is finally back to the double-digit territory, they added.

It is also important to note that private sector growth remains resilient, the DBS analysts said, noting that private consumption growth continues to trend at an annual rate of 5.5 percent to 6.0 percent and constantly contributing 4 percentage points to overall GDP growth in the past five years.

Providing the least optimistic view, meanwhile, was Moody’s Analytics, which said the Philippines likely grew by just 5.8 percent in the September quarter.

“Higher government spending was likely the main driver and provided a further boost to investment over the quarter,” the research arm of Moody’s Investors Service said.

It noted that the government had stepped up its spending af ter a weakness earlier in the year threatened the Philippines’ record of impressive GDP growth in recent years.

Moody’s Analytics stressed, however, that exports remain a weak point given weakened global demand, especially from China —an important trading partner of the Philippines.

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