Slowdown disappoints analysts; govt optimistic


Analysts were disappointed with the first-quarter slowdown in the economy, which could mean that full-year gross domestic product (GDP) growth would fall below last year’s 6.9 percent.

Government officials, however, said the domestic economy remains poised to maintain its growth momentum amid a recovery in external trade, a boost in infrastructure spending, and business optimism.

Most analysts said the first-quarter growth was strong enough to achieve full-year growth of between 6.3 percent and 6.9 percent.

With that range yielding an average of 6.5 percent, growth could fall below the 6.9-percent rate of expansion achieved last year. This will be at the lower end of the government’s 6.5-percent to 7.5-percent full-year target.

ANZ Bank economist Eugenia Victorino said the Philippines’ first-quarter GDP growth remained strong even as it missed expectations.

“Household spending eased on high base effects from an election-boosted growth in 2016. Even with the moderation, domestic demand remained robust. Trade deficit narrowed on strong export growth, easing some of the risks surrounding the fall in the current account surplus,” she said.

With this, ANZ is holding on to its 2017 GDP growth forecast of 6.9 percent.

The near-term outlook for domestic demand and external environment is still positive, Victorino said.

Land Bank of the Philippines market economist Guian Angelo Dumalagan said slower-than-expected growth in the first quarter might reduce the country’s full-year expansion to 6.7 percent from an initial estimate of 6.8 percent.

“Nevertheless, growth in the next quarters might be higher than the first quarter’s reading, supported by the government’s ambitious infrastructure plan and the recovery in exports amid improving global demand,” he said.

There might also be some boost from the mining and quarrying sector, which could recover after it was hit last quarter by a mining crackdown, he said. The sector might also benefit from the projected rebound in commodity prices this year.

Risks in sight

However, there are a number of risk factors ahead, including the possible resurgence of an El Niño dry spell, rising interest rates that might dampen spending, and uncertainty over the government’s ability to deliver on its promise of higher infrastructure spending.

London-based research consultancy Capital Economics said that despite last quarter’s slowdown, the economy was likely to continue growing at a solid pace.

“Consumption should remain buoyant, helped by strong sentiment, healthy household finances, and low interest rates. Meanwhile, President [Rodrigo] Duterte is committed to a big increase in infrastructure spending. With debt levels very low, government spending is likely to be a key driver of growth over the next couple of years,” the firm’s economist, Gareth Leather, said.

Stronger global demand should also provide a boost to exports, he said, noting that the world economy is experiencing a broad-based upturn that looks set to continue for another year or two.

“And although recent activity data confirmed our suspicions that China’s economy is slowing, any further slowdown is likely to be gradual,” he said.

Leather said some of the risks to the medium-term outlook have faded. Even as there has been no let up in President Duterte’s controversial war on drugs, he is sticking to his pledge to leave economic policy in the hands of his well-respected Finance secretary, the economist said.

In addition, US President Donald Trump has also tempered his protectionist threats, which should cheer up the country’s large business outsourcing sector and overseas Filipino workers who send $25 billion in remittances annually.

“On balance, we are sticking our GDP growth forecast of 6.5 percent for both 2017 and 2018,” he said.
DBS economist Gundy Cahyadi said it remains to be seen if public works spending would indeed accelerate.

“We maintain our call that GDP growth may moderate to 6.4 percent this year before inching back up to 6.7 percent in 2018,” he said.

“Risks to our forecasts are somewhat neutral now (tilted to the upside, previously), given the slightly disappointing first quarter numbers,” he added.

‘Still positive’

IHS Markit Asia-Pacific chief economist Rajiv Biswas said that despite some moderation in the pace of growth, the Philippine economy has continued to show strong GDP growth momentum, with the near-term growth outlook remaining positive.

“Manufacturing production measured both in value and volume terms rose strongly in March, continuing to reflect buoyant manufacturing output growth,” he said.

He said near-term indicators continue to signal strong positive growth momentum, with the Nikkei Philippines Manufacturing Purchasing Managers Index at 53.3 in April, “continuing to indicate robust expansion in coming months, underpinned by growth in output and new orders.”

For 2017, IHS Markit forecast the Philippine economy to grow by 6.4 percent year-on-year, marking the sixth successive year of rapid economic growth.

ING Bank Manila senior economist Joey Cuyegkeng said private sector economic activity remains strong with 5.7 percent growth in the first quarter, and is likely to continue that way for the rest of the year.

“But negative base effects would continue in the second quarter since the second-quarter 2016 growth of the private sector [was]also high on the back of election spending and capacity expansion as companies planned for at least a trend growth of 6 percent to 6.5 percent in the coming years,” he said.

Cuyegkeng also anticipates government spending to recover especially in the second half as infrastructure spending is ramped up.

As a result, economic growth for the full year could easily hit the lower end of the government’s target range of 6.5 percent to 7.5 percent.

“We are reviewing our full-year forecast of 6.3 percent for a possible upward revision. We expect second-quarter growth to also show slower year-on-year growth but would likely accelerate as government spending and infrastructure projects gather momentum,” he said.

Infra plan touted anew

Government officials vowed to ramp up spending on infrastructure to boost growth.

“It is important to ensure that government spending for both consumption and investment remains within the fiscal program, which is critical to sustain the growth momentum,” Socioeconomic Planning chief Ernesto Pernia said.

With the Duterte government’s “Build, Build, Build” program, Pernia said construction activities and public spending should pick up sharply, consistent with the government’s aim to spend 5.3 percent of GDP this year on infrastructure, and up to 7.4 percent by 2022.

The central bank said the outlook for Philippine economic growth remained strong, even as the first-quarter outturn was slower than what the market had anticipated.

In a text message to reporters on Thursday, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the monetary authority would continue to “provide an operating environment that would support non-inflationary domestic demand.”

“As in the past, we will continue to calibrate our policy levers so these provide the appropriate incentive structure for businesses to plan with risk-adjusted returns in mind,” he said.

Echoing Pernia, BSP Deputy Governor Diwa Guinigundo said the challenge was to further strengthen infrastructure spending to help boost jobs and increase incomes, as well as extend urbanization and economic activities to key areas.

“Hence, legislative action on the tax reform package is critical so that infrastructure and economic activities are sustained with actual public revenues,” he said.

Finance Secretary Carlos Dominguez 3rd also said the Philippines was still on track to meet its full-year growth target of 6.5 percent to 7.5 percent, partly as a result of the administration’s “Dutertenomics” strategy to stimulate economic activity and achieve financial inclusion through an aggressive expenditure program on infrastructure, human capital formation and social protection.


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