Lower consumption ‘main source of disappointment’

The country’s first quarter year-on-year economic growth of 6.4 percent disappointed financial markets as this was below the consensus forecast of at least 6.7 percent expansion.

The slowdown was not just due to base effects as on a seasonally adjusted sequential basis, this implies 1.1 percent quarter-on-quarter growth, from 1.8 percent in the previous quarter, Japanese investment house Nomura said in a research note.

“The main source of disappointment for us was private consumption which eased to 5.7 percent from 6.2 percent despite resilience of remittances and stronger agriculture output. Investment spending also slowed to 11.8 percent year-on-year from 18.5 percent with public sector investment seeing some unfavorable base effects. These offset the strong pick-up in exports of goods and services, which grew 20.3 percent from 13.4 percent,” Nomura said.

From the supply side, Nomura noted that manufacturing improved but mining declined by 20 percent, likely reflecting the closure order on some mines announced in February. Consistent with slower investment spending, it noted that construction activity had also eased along with the services sector.
Despite the disappointing first quarter growth, Nomura said it would maintain the full-year growth forecast for the Philippines at 6.7 percent. A 6.4- percent growth, it said, was still robust.

“We continue to expect government spending to accelerate with the administration’s strong push to implement public sector infrastructure projects. This also bodes well for private sector spending, including consumption. Both consumer and business confidence have held up despite the government transition and associated political noise,” it said.

Nomura still sees the Bangko Sentral ng Pilipinas hiking key interest rates by 50 basis points in the second semester, citing the need to curb inflation risks.

ING senior economist Joey Cuyegkeng, on the other hand, noted that government spending and infrastructure activity was very slow— “a disappointment after all the hype.”

“High base effects and likely some difficulty to get things moving accounted for the slowdown,” Cuyegkeng said, noting that real government spending was only up 0.2 percent year-on-year in the first quarter while real public construction activity posted only a 2 percent year-on-year growth.
But the economist said he was expecting government spending to recover in the second half with the ramp-up in infrastructure spending.

Meanwhile, he noted that private sector economic activity remained strong, thus perking up first quarter growth.

“Momentum from private sector activity is likely to continue for the rest of the year but negative base effects would continue in second quarter since second quarter 2016 growth of private sector was also high on the back of election spending and capacity expansion as companies planned for at least a trend growth of 6-6.5 percent in the coming years,” Cuyegkeng said.