UPDATE 2: PH Q3 GDP growth slows sharply to 5.3%


(Updates with HSBC comment)

The Philippine economy grew 5.3 percent year-on-year in the third quarter of 2014, the slowest pace for a three-month period since the fourth quarter of 2011, official figures released Thursday morning show.

The rate of expansion in gross domestic product (GDP) for the July-September period released by the National Economic and Development Authority (NEDA) and the Philippine Statistics Authority (PSA) stands far below the median forecast for the quarter by analysts, as well as the comparative figures recorded in the second quarter and the year earlier.

Analysts polled earlier estimated the rate of growth for the third quarter to be within the 5.7 percent to 7 percent range.

The official third-quarter figure also marks a significant slowdown from the 6.4 percent increase posted for the second quarter and the year-earlier rate of 7 percent.

“The third-quarter GDP . . . is significantly below our 6.8 percent view and the consensus of 6.5 percent,” Patrick Ella, economist at Security Bank Corp. said.

Weak agri, govt spending

Ella said what drove the subpar expansion during the period was the drop in agriculture production and government spending.

Data from the PSA showed that by far, the biggest decline has been in the agriculture, fishery and forestry sector. With a share of 9 percent of GDP, the sector contracted by 2.7 percent.

On the government front, final consumption expenditure (is this supposed to be the rate of GROWTH that slowed down? Or the level itself of expenditure actually fell?) fell 2.6 percent in the third quarter from 7 percent (is this 7 percent growth? or 7 percent drop in consumption expenditure?) a year earlier due to delays in the disbursement of allocations for salaries and wages, as well as maintenance and other operating expenses in the implementation of programs and projects of the major sectoral departments.

“The recent growth print confirms our prior concerns that it would be hard to bank on weather conditions to drive growth. As such, agriculture was a significant drag on the economy as a whole as it reversed from contributing 0.04 percentage points to growth to dragging GDP lower by 0.27 percentage points,” said Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands (BPI).

Mapa also cited the contraction in the public administration sector, which weighed down the GDP figure by 0.13 percentage points.

“We had forecast a 0.0 percentage point contribution because of all the promises by the administration to spend. But it looks like the budget surpluses and small deficits translated into a negative contribution,” he said.

The services sector also served as another drag on GDP growth, he added.

Based on the PSA data, the expansion in the services sector decelerated to 5.4 percent, although the sector remained the main driver of GDP growth for the quarter. The PSA noted that growth in services has been on the downward trend since the first quarter of 2014.

The industry sector posted a 7.6 percent expansion, easing slightly from the year-earlier pace and the previous quarter’s growth of 7.7 percent and 7.9 percent, respectively.

Contraction in imports

Banking giant HSBC pointed to the contraction in imports during the quarter as a cause of the unexpectedly lower GDP growth.

“Our forecast was at the bottom of consensus, and still, the actual GDP growth number was below it,” said Trinh Nguyen, economist at HSBC.

“Why the big miss? We believe it is primarily due to the assumption that customs trade number showed a jump of net exports thanks to the contraction of imports in third quarter of 2014,” she said.

Prior to the release of the official data, Nguyen said growth likely slowed to 5.7 percent year-on-year in the third quarter.

The HSBC economist said that many believed that the contraction in imports would contribute positively to growth and offset government underspending.

“But at HSBC, we see the decline of custom imports as a symptom of infrastructure challenges in the Philippines rather than a contributor to growth,” Nguyen explained.




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