Growth forecasts for 2019 cut

The more than four-year low economic growth posted in the second quarter is expected to pull full-year expansion below the government’s 6 to 7 percent target range, with a number of institutions already cutting their 2019 forecasts.

For the head of the Duterte administration’s economic team, the 5.5-percent gross domestic product (GDP) growth was inevitable due to government underspending on public goods and services of about P1 billion a day during the start of the year.

“Second-quarter growth was not an unexpected result given the apparent lingering impact on the government’s accelerated spending program of the four months-and-a-half delay in the passage of the 2019 budget in the House of Representatives. This delay was further exacerbated by the ban on infrastructure projects during the election campaign,” Finance Secretary Carlos G. Dominguez III said in a statement, adding that it did not help when the implementing guidelines of this year’s P3.7-trillion appropriations were released in late May.

Dominguez blamed the 17-quarter low GDP expansion to “the pernicious impact on the domestic economy of the undue delay in the approval by the House of the national budget, more so in the midst of an unprecedented aggressive public spending program to stimulate high—and inclusive—growth.”

“Let this be a stark reminder to our lawmakers as to why they should avoid any delay in the approval of the 2020 General Appropriations Bill,” Dominguez said.

In a report Friday, debt watcher Moody’s Investors Service further cut its 2019 growth forecast for the Philippines to 5.8 percent from 6 percent previously.

As early as June, Moody’s already indicated that the Philippines’ second-quarter growth could be a disappointment.

“Against the backdrop of weakening external demand, we expect economic growth to recover from the temporary slowdown precipitated by the budget delay in the first half of 2019,” Moody’s said in its annual credit analysis for the Philippines.

Other than the hiccups in economic growth, Moody’s was mostly all praises for the Philippines’ macro fundamentals.

“The momentum for fiscal reform has been sustained, improving prospects for a further improvement in the Philippines’ fiscal profile. Broad macroeconomic and financial stability remains intact: headline inflation has been restored to within the central bank’s target band, while the balance of payments has remained stable despite a widening in the trade deficit,” Moody’s said.

In an Aug. 8 report titled “Weak growth to prompt more aggressive policy easing,” London-based Capital Economics said that “while we do expect a recovery in [the Philippines’ GDP] growth over the second half of this year, we don’t think it will be especially strong.”

“The economy still faces a number of headwinds. The external environment is set to remain tough. We expect global growth to weaken further over the coming quarters. The intensification of the US-China trade war is an additional headwind. Industrial output is likely to remain sluggish as a result,” Capital Economics Asia economist Alex Holmes said.

As such, Capital Economics reduced its growth forecast for the year to 5.8 percent from 6 percent previously.

For its part, UK-based Oxford Economics lowered its projection to 5.7 percent from 5.9 percent previously, even as it expected “second-quarter GDP growth to mark the low point for this year as the contraction in public spending was due to temporary administrative delays, which should dissipate in the second half.”

“However, escalating trade tension between the US and China is a key risk to the outlook with exports expected to remain under pressure,” Oxford Economics economist Thatchinamoorthy Krshnan said in an Aug. 8 report titled “Budget delay sees Q2 GDP growth slow to 4-year low.”