5.6% growth not unexpected (by us)

PHILIPPINES - In Brief 09 May 2019 by Romeo Bernardo

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As we had feared, GDP growth fell to 5.6% in 1Q19, below even the low end of government’s downscaled 6-7% target for the year and much lower than the 6.1% median analyst forecast. Officials were quick to point the finger at the delayed passage of government’s 2019 budget, which capped the growth in public consumption to single digit and led to the decline in public construction. These public sector accounts contributed only 0.7ppt to overall GDP growth, compared with 1.8ppt in 1Q18. But it was not just public spending. The deficit in net exports widened further to 14.6% of GDP compared with 12.8% in 1Q18, dragging GDP growth by 2.6ppts. And it was not just goods exports lagging goods imports, growth in services exports was also lower than imports, with growth in the BPO industry remaining weak (2.2% in real value added terms). The key bright spot, likely benefiting from election spending, was private consumption, where growth strengthened to 6.3% in 1Q19 (vs. 5.6% in 1Q18) even though the growth in remittances slowed significantly over the period (0.9% in 1Q19 vs. 4.3% in 1Q18). Investments likewise continued to advance but growth rates were less than stellar, e.g., durable equipment grew 5.7% while private construction slid back to single digit growth (8.6%). Meanwhile, production accounts showed notable slowdowns in agriculture (attributed to the El Nino weather disturbance) and industry (particularly manufacturing and construction) while services sector growth accelerated (particularly trade, finance and logistics/communications). The economy’s performance in 1Q19 is in line with our below consensus forecast of 5.9% GDP growth for the year. Although we expect growth...