Economic growth seen picking up pace in H2

As the government begins to catch up on its spending program—which was curbed by the delayed passage of the national budget—economists are hopeful economic growth would pick up pace in the second semester to reach at least 6 percent for the full year.

ING senior economist Nicholas Mapa said the government had started the first month of the second semester “on the right foot,” showing a decent 3.4 percent year-on-year pickup in expenditure while revenue collection remained strong at 9.3 percent.

The government earlier reported a budget deficit of P75.3 billion in July, compared to P41.8 billion in June.

“With the administration looking to chase 6 percent growth for 2019, the July numbers mirror the stark drawdown in the funds parked in the BSP (Bangko Sentral ng Pilipinas), with the Treasury Single Account (TSA) seeing a decrease of roughly P100 billion,” Mapa said.

TSA is an essential tool in consolidating and managing governments’ cash resources.

“Government spending [or lack of it] was tagged as one of the culprits for the speed bump that the Philippines hit in the first half. So far, it looks like the government is hell bent on rolling out the funding to help nudge growth in the right direction,” Mapa said.

The country’s gross domestic product (GDP) had grown at a disappointing rate of 5.5 percent year-on-year in the first semester.

“With the BSP easing policy [and projected to cut further] to revive investment, it looks like we will need a concerted effort to get second half growth to 6.4 percent, good enough to carry the Philippines past the 6 percent finish line by year-end,” Mapa said.

Security Bank, which sees the domestic economy growing by 6 percent this year, is banking on an increase in government spending and capital formation alongside a rebound in household spending.

Robert Dan Roces, Security Bank economist, said: “We’re seeing that the government has already reverted to deficit spending, which will translate to increase in infrastructure spending.”

The economist said that after the negative effect from the delay in budget passing that was felt earlier in the year, government spending had picked up starting late June and in the month of July.

“If we use automotive spending as proxy, we’re seeing continued increase in growth so that could also mean household spending is back. Those indicators support very good second half [growth] in the Philippines,” he said.

Nomura economist Euben Paracuelles observed that on a three-month moving average basis, excluding interest spending, the government’s fiscal expenditure growth had started to visibly turn around in July. This was seen consistent with Nomura’s view that after the collapse of spending in the first half owing to the budget delay, it will accelerate sharply for the rest of the year with the government’s catch-up spending plan. The acceleration is seen to be led by capital outlays and infrastructure spending.

“We forecast the full-year 2019 fiscal deficit at 2.9 percent of GDP, from 2.2 percent in July, implying a highly expansionary fiscal stance in second half and supporting a strong rebound in GDP growth. However, the upshot is the current account deficit also widens markedly owing to higher import demand,” Paracuelles said.