Despite the better-than-expected performance of the country’s economy in the third quarter, economists and analysts said this will not be enough to enable the government to meet its growth target for 2019.
Economists and analysts made the pronouncement after the Philippine Statistics Authority (PSA) announced on Thursday that GDP expanded by 6.2 percent in the July-to-September period, exceeding market expectations.
However, GDP growth in January to September averaged only 5.8 percent, below the 6-percent percent to 7-percent target of the government for this year.
To at least hit the low end of the government’s growth target this year, Socioeconomic Planning Secretary Ernesto M. Pernia said the economy must expand by 6.7 percent in the fourth quarter.
“I believe it will be tough [for GDP growth] to reach 6.7 percent in the [fourth quarter],” said University of Asia and the Pacific (UA&P) School of Economics Dean Cid Terosa. “Two strong last two quarters may not be enough to downplay the effects of [the] weak first two quarters of the year.”
If the growth target is missed, it will be the first time in eight years that GDP expansion will fall below 6 percent. PSA data compiled by the BusinessMirror showed that the last time GDP growth fell below 6 percent was in 2011, when it reached 3.7 percent.
Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang said the country’s economy still does not have the “engine” to sustain such a high growth. Structural changes need to be undertaken to improve the capacity of the economy to grow faster.
At best, Ang said the economy could expand by 6.5 percent in the last quarter of the year, which will bring full-year GDP growth to 5.9 percent, still below the low-end of the government’s target.
UnionBank chief economist Ruben Carlo Asuncion said a 5.9-percent GDP growth for 2019 is “not bad at all” given the challenges encountered by the economy this year. Asuncion projected fourth-quarter GDP to average 6.4 percent.
“Hitting 6.7 percent is a tall order. This would mean a very disciplined fiscal rollout, and the absorptive capacity of economic units should be higher than average—or previous fiscal years,” he said.
“For a higher probability of hitting 6.7 percent, government spending catch-up should really catch up as touted. So far, the trade performance, particularly imports, has not improved year-on-year. A recovery of the sluggish import performance may kick in this fourth quarter,” Asuncion added.
The PSA said trade and repair of Motor Vehicles; Motorcycles; Personal and Household Goods; Construction; and Financial Intermediation were the main drivers of growth for the quarter.
Among the major economic sectors, Services grew the fastest at 6.9 percent. Industry expanded by 5.6 percent, while Agriculture, Hunting, Forestry and Fishing grew 3.1 percent.
With the country’s projected population reaching 108.3 million in the third quarter, per-capita GDP went up by 4.5 percent.
Headwinds
BPI Lead Economist Emilio S. Neri Jr. agreed with these statements and said the “breakneck speed” of 6.7 percent in the fourth quarter may not be feasible due to base effects.
Neri said growth in the last quarter of 2018 reached 6.3 percent. He added that inflation also subsided during the period, particularly in November and December when inflation averaged 6 percent and 5.1 percent, respectively.
Of “utmost concern,” he said, is the 2.1-percent contraction in Gross Capital Formation and 0.02-percent decline in imports in the third quarter, as this reflects the spending backlog in the public sector.
“This could also mean that growth in the medium term may be lackluster and may somewhat fall short if global [e.g., rising protectionism, geo politics] and domestic headwinds [African swine fever, water shortage] intensify,” said Neri.
ING Bank Senior Economist Nicholas Antonio T. Mapa said the performance of the economy in the third quarter of the year indicated that there was a lack of investments. Mapa said investments have “languished” for two straight quarters this year. This will have an impact on the “pace of spending” in the last quarter of the year.
However, he said there may still be a chance that the government will be able to hit its target of a 6-percent growth this year. “But this will require the economy to fire on all cylinders.”
“The better-than-expected growth will, however limit pressure on the BSP [Bangko Sentral ng Pilipinas] to cut rates again in early in the first quarter of 2020. But given the dovish rhetoric from BSP Governor [Benjamin] Diokno, we continue to pencil in further easing from the BSP in 2020,” said Mapa.
Optimism
For First Metro Investment Corp.-UA&P Capital Market Research economist Victor A. Abola, the performance of the economy during the period showed that government spending has already bounced back.
Abola noted that public construction expanded by 11 percent. While this was still slower than the 25.2 percent last year, it was a turnaround from the 27.2-percent contraction in the second quarter.
Private construction, Abola said, grew even faster at 19.1 percent, mainly due to big-ticket public-private partnership (PPP) projects, such as MRT 7, Calax, LRT 1 extension and the third Mactan bridge, among others.
Abola added that residential and commercial building construction also contributed significantly to the increase in private construction.
“I see the economy accelerating further in the fourth quarter and so we still expect full-year GDP growth at 6 percent,” Abola said. “[A growth of 6.7 percent in the fourth quarter is] achievable due to stronger consumption and government spending. Note the robustness of private construction.”
Dominguez: Goal within reach
Finance Secretary Carlos Dominguez III said the GDP growth target is still within reach as the government hikes infrastructure spending in the remaining months of the year.
Dominguez said the national government has managed to hit its spending targets in the latter part of the July-to-September period, cancelling out the remaining effects of the nearly five-month delay in the 2019 General Appropriations Act that spilled over into the second quarter.
“Further acceleration of state spending on infrastructure and human capital development served as a fiscal stimulus to the economy,” Dominguez said.
“This factor combined with decelerating headline inflation and its subsequent stronger consumer spending in sustaining the growth momentum in the July-to-September period despite the general international uncertainty induced in large part by the United States-China trade friction,” he added.
Citing figures from the Department of Budget and Management, Dominguez noted that the catch-up spending plan implemented by economic managers began to hit its stride as national government disbursements rose sharply in September by 39 percent—the fastest rate thus far for 2019—to P415 billion from P298.6 billion last year, or an increase of P116.5 billion.
With a report by Jove Moya
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