GDP likely grew below 7% in 2nd quarter

Amid high inflation, most economists expect economic growth of below 7 percent in the second quarter and likely at a slower pace than the first quarter’s 6.8-percent expansion.

Of the nine economists polled by the Inquirer last week, three projected 6.5 percent year-on-year gross domestic product (GDP) growth, while one economist forecast 6.6 percent, both below the 6.7 percent posted in the second quarter of last year.

The government will announce the second-quarter economic performance on Aug. 9, Thursday. It targets full-year growth of 7-8 percent for 2018.

Barclays’ Rahul Bajoria, Capital Economics Asia economist Alex Holmes and Oxford Economics economist Beatrice Tanjangco said in separate e-mails that they expected 6.5-percent GDP expansion during the April-to-June period.

“We expect growth to ease due to weaker support from trade and potentially lower household spending amid rising inflation and interest rates,” Tanjangco explained.

Headline inflation averaged 4.3 percent in the first half—in the second quarter alone, the average rate of increase in the prices of basic goods and services was 4.8 percent, already beyond the government’s target range of 2-4 percent for the entire year.

The Bangko Sentral ng Pilipinas’ policymaking Monetary Board already raised the policy rate to 3.5 percent or by 25 basis points each in May and June due to higher-than-expected inflation rates.

HSBC economist for Asean Noelan Arbis’ forecast was 6.6 percent. “Weak export growth alongside elevated capital goods and raw materials imports likely dragged headline growth. Meanwhile, higher inflation and taxes this year are also likely to continue to restrain private consumption in the second quarter, as exemplified by a 12.5-percent year-on-year decline in auto sales in the first half of the year,” he said.

Arbis was referring to the Tax Reform for Acceleration and Inclusion (TRAIN) Act, which since Jan. 1 jacked up or slapped new excise taxes on cigarettes, sugary drinks, oil products and vehicles, among other goods, to compensate for the restructured personal income tax regime that raised the tax-exempt cap.

The HSBC economist nonetheless expected a “sizeable” contribution of growth in government consumption and fixed investment to the second-quarter GDP figure. Government spending on public goods and services from January to June jumped by a fifth year-on-year to P1.6 trillion, also exceeding by 2 percent the six-month program.

Ateneo de Manila University economics professor Alvin P. Ang’s projection was 6.7 percent, “due to infrastructure spending and inflation,” both higher year-on-year.

Expenditures on infrastructure and other capital outlays in the first half climbed 41.6 percent year-on-year to P352.7 billion and surpassed the program by 4.3 percent.

Nomura economist Euben Paracuelles and Rizal Commercial Banking Corp.’s Michael E. Ricafort both forecast 6.8-percent growth during the second quarter.

“Lower individual income tax rates under the TRAIN law have also increased incomes/purchasing power of individuals/households, thereby supporting further growth in consumer spending. However, this is offset by higher inflation partly due to weaker peso, higher global crude oil prices and the TRAIN law,” Ricafort said.

Two economists—Land Bank of the Philippines market economist Guian Angelo S. Dumalagan and Pauline May Ann E. Revillas of Metrobank’s research department—projected second-quarter GDP growth of 7 percent, or the lower end of the government’s full-year goal. —BEN O. DE VERA