LOCAL economists may have opposing views on GDP growth in the fourth quarter of 2018, but their projections agree on one thing: the pace of expansion was likely slower compared to that seen in 2017.
Bank of the Philippine Islands (BPI) economist Emilio Neri Jr. believes that GDP in the fourth quarter likely grew by 6.4 percent. This is higher than the 6.1 percent recorded in the previous quarter and the 6.2 percent in the second quarter.
However, ING Bank Manila economist Nicholas Mapa—in another Philippine growth assessment paper—said the country’s growth rate could have plummeted to 5.9 percent in the October-to- December period last year. This forecast would mean the country’s economy grew the slowest in 14 months.
The forecasts of Neri and Mapa were lower than the 6.6 percent GDP expansion recorded in the fourth quarter of 2017.
Neri argued that among the main drivers of a potentially higher growth in the fourth quarter of 2018 is the rapid growth in capital formation, especially after the government reported that infrastructure spending rose by more than 40 percent.
The BPI economist also cited “early signs” of rebound in household final consumption, as sharp drops in the November and December inflation, coupled with the reduction in oil prices, likely bolstered consumer confidence in the fourth quarter. On the production side, Neri said there may have been a “modest recovery” in both agriculture and manufacturing sectors that benefited from improved weather conditions and lower oil prices.
“Improvement in corn output and a rebound in [farm] exports also seem to indicate a small turnaround in overall agriculture and manufacturing performance last quarter,” Neri said.
While he warned of potential downside risks from sustained weakness in exports and remittances in October and November for the demand side, Neri said the “potential improvement” in the fourth quarter of 2018 could be a “foretest” of a more convincing full-year growth recovery in 2019.
“Lower inflation and sustained robust expansion in capital spending will likely bolster growth to accelerate and settle somewhere between 6.6 percent and 7 percent for the whole of 2019,” he said.
ING’s Mapa was less sanguine, saying that higher inflation and the string of rate hikes by the Bangko Sentral ng Pilipinas posed a threat to the 14 straight months of above 6-percent GDP expansion.
“With 3 out of the 4 sources of growth seen to be challenged in the last three months of 2018, the string of above 6-percent growth prints for the Philippines is under threat,” Mapa said.
Mapa noted that as household consumption accounts for roughly 67 percent of the total output, the still-elevated inflation will likely challenge this sector.
The ING economist said the recent tightening cycle of the BSP likely affected investments and capital formation.
“On the trade front, net exports, or the difference between exports and imports, will likely pose a steeper drag on overall GDP, as well. For October and November, the trade gap widened by 36.1 percent, yet another reason why the overall GDP print may be challenged,” Mapa said.
The upside risk to Mapa’s forecasts is government spending—as investment in infrastructure hit above 40 percent in November alone, it could be one source of growth that offset the other sectors. The Philippine Statistics Authority is expected to announce the country’s growth numbers on January 24.