Prepare for disappointing Q2 growth, says Moody’s

The Philippines’ economic growth in the second quarter could turn out to be a disappointment amid government underspending, bad weather and the escalation of trade tensions between economic giants United States and China, debt watcher Moody’s Investors Service said.

“Don’t be excited about the second quarter—our expectations are not very great either,” Christian de Guzman, Moody’s vice president and senior credit officer at Moody’s sovereign risk group, told a media roundtable Thursday.

But De Guzman declined how the gross domestic product (GDP) rate moved vis-a-vis the four-year low of 5.6 percent posted in the first quarter.

Besides underspending on public goods and services—which spilled over until April due to the impasse in Congress on the proposed P3.7-trillion 2019 national budget, weather events such as the prolonged dry spell caused by El Niño and external developments like the US-China trade war that have affected the country’s exports also dimmed growth prospects during the April to June period, De Guzman noted.

In May, Moody’s cut its 2019 growth forecast for the Philippines to 6 percent from 6.2 percent previously owing to the slow first-quarter expansion.

Its revised growth projection was at the lower end of the government’s downgraded  6-7 percent target for the year.

While the delayed budget approval underscored a political risk to the economy, De Guzman said that, for the most part, the downside risks could only be temporary.

“Going forward, we expect some degree of catch-up for the government to fully execute the budget,” De Guzman said, referring to the government’s plan to fast-track implementation of big-ticket public works and transport infrastructure projects for the rest of the year to reverse the underspending of P1 billion a day on public goods and services in the first four months.

As for the US-China trade war, De Guzman said the Philippines would still be “somewhat immune” as the economy remained less dependent on exports.

It also helped that there were “positive elements from imposition of reforms” by the Duterte administration through a number of legislation approved by the 17th Congress, including the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

De Guzman said these “supported improvements in the Philippines’ fiscal position,” as tax revenues picked up of late.

The effects of the budget impasse should now serve as a warning to legislators moving forward, De Guzman said.

“Given what happened to the economy—the deceleration in growth in the first quarter, I think from those lessons learned, you can take away that the congressmen and senators are probably emboldened not to let that happen again,” he said.