Another disappointing quarter

PHILIPPINES - In Brief 08 Aug 2019 by Romeo Bernardo

When we forecasted a 5.9% GDP growth rate for 2019 at the start of the year, many commented that we were too bearish; after all, it is an election year. Now, with 2Q19 GDP growth reported at 5.5%, even lower than 1Q19’s 5.6%, were we in fact too optimistic? Latest data show a marked deceleration in the growth rate of domestic demand in 2Q19 (2% yoy vs. 6.8% in 1Q19 – see chart), as household consumption and public spending slowed while investments contracted, particularly public construction and spending on durable equipment (land transport, specialized machinery). While the decline in investments (-4.8% for fixed capital), partly an upshot of government’s delayed budget and the loss of momentum in infrastructure spending, is not entirely unexpected, the slowdown in private consumption, from 6.1% in 1Q19 to 5.6% in 2Q19, is somewhat surprising considering tamer inflation and election-related incomes support. We could only surmise at this time that the severe water crisis in Metro Manila during the period may have led to much weaker consumer sentiments, in the event temporary, but something to investigate more closely. In the meantime, the decline in investments is mirrored in the sudden drop in imports in 2Q19. This is the flipside of our observation in past reports of significant leakage of domestic demand growth through imports. Hence, despite anemic export growth, traced in part to the US-China trade war, the fall in imports caused the 2Q19 trade gap to shrink, which is positive for overall growth. Meanwhile, production side data show the service sector continuing to pose strong growth, industry and manufacturing continuing to lose pace and farm output still flat. G...

Now read on...

Register to sample a report

Register