Q2 GDP growth slowest in 17 quarters

The economy grew by 5.5 percent in the second quarter—the slowest in 17 quarters—due to government underspending, no thanks to the delayed approval of the national budget caused by legislators’ squabbling over “pork” funds ahead of the 2019 midterm polls.

National Statistician Claire Dennis S. Mapa yesterday said household consumption contributed 3.7 percentage points to gross domestic product (GDP) growth in April to June, as easing inflation boosted consumer spending—a major growth driver.

However, household consumption growth slowed to 5.6 in the second quarter from 6.1 percent a quarter ago and 6 percent a year ago, as the water supply shortage in Metro Manila resulting from “poor coordination between government and private distributors” had “adversely affected consumer confidence,” Socioeconomic Planning Ernesto M. Pernia said in a press conference.

Also, Philippine Statistics Authority (PSA) data showed that government consumption accounted for only 0.9 percentage point of the second quarter GDP growth, while capital formation or public investments was a drag with minus 2.4 percentage points—meaning the sector contracted during the period.

Data showed that expenditures on government investments fell by 8.5 percent in the second quarter, with fixed capital formation sliding 4.8 percent.

Economic managers had said the government underspent P1 billion a day in the first four months as it operated using a reenacted 2018 budget.

The approval of the 2019 national budget had dragged mainly as the lower House had been found inserting “pork” provisions. President Duterte vetoed those projects as they were not part of his administration’s priorities when he signed this year’s P3.7-trillion appropriations on April 15, which was already four-and-a-half months late.

Pernia—the country’s chief economist and head of the state planning agency National Economic and Development Authority—blamed three things for the slower second-quarter growth: the prolonged dry spell due to El Niño, which although mild caused contraction in output of water-sensitive crops such as palay and corn; growing protectionism—including the US-China trade “war”—that slowed the growth of the country’s business process outsourcing (BPO) sector, and government underspending.

Neda Undersecretary Rosemarie G. Edillon said that had the 2019 budget been implemented as scheduled, growth in the first half would have been higher by 1 percentage point.

“We have anticipated the ban on public works and other spending, leading up to the May 2019 elections. For this reason, government agencies had undertaken preprocurement processes, short of award, in the latter part of 2018. What we did not foresee then was the delay in the passage of the 2019 national budget,” Pernia said.

“The weak economic performance in the second quarter of 2019 is the continuing effect of that delay in the passage of the 2019 budget, coupled with the election ban. Government consumption spending has slowed down; capital formation has declined sharply, particularly on the government’s side. Public construction dropped by 27.2 percent for the second consecutive quarter, which offset the growth brought in by private construction,” he said.

“For this reason, we are calling for the timely passage of the national budget for fiscal year 2020, so as not to derail next year’s economic growth. This is crucial to the delivery of the government’s promises such as the completion of the ‘Build, Build, Build’ program and the full implementation of the country’s social development programs, such as the free tertiary education, the universal health care, and the expanded conditional cash transfer, among others,” Pernia said.

Pernia expressed confidence that the approval of the proposed P4.1-trillion 2020 national budget would no longer drag in Congress.

“I’m very sure, almost certain that Congress will do a better job at approving the 2020 budget. They will be embarrassed if it happens again,” he said.