BSP: Robust Q3 growth proves catch-up gov’t spending is working

The faster growth recorded by the Philippine economy in the third quarter is proof that the government’s massive spending boost in recent months—a response to the delayed implementation of the national budget earlier this year—is having its desired effect.

Thus said the head of the country’s central bank, who added the goal of achieving the desired domestic product growth for this year, albeit challenging, remained within the grasp of policymakers.

“The third quarter GDP (gross domestic product) number exceeds the consensus forecast, which indicate the catch-up plan is working,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said in a statement. “The 6-percent full-year GDP growth target is a tall order, after a slower than expected first half, but still doable.”

The government on Thursday announced the economy grew 6.2 percent in the third quarter of 2019, beating the median estimate of analysts of 6 percent, and improving on the 5.5-percent economic growth average logged in the first half. The government is hoping for an average GDP growth of 6-7 percent by year-end, but concedes the final number will probably be closer to the lower end of the range.

“In any event, the Philippines’ growth performance this year is one of the fastest among relatively large economies, amid a slowing global economy,” the BSP chief said.

Meanwhile, Bank of the Philippine Islands lead economist Jun Neri noted the country’s economic growth in the third quarter continued to be driven by strong household consumption, aided by the declining inflation rate.

“Declining interest rates and improving remittance flows also provided additional boost to the domestic demand,” he said in a note to the press. “Among the components of household consumption, food, clothing, transport, communication and recreation recorded a stronger growth.”

The BPI economist noted, however, capital formation remained weak, dragged down by the decline in durable equipment purchases in particular transport equipment.

“The private sector’s anticipation for lower interest rates may have prompted the private sector to postpone their capital goods purchases,” he said. “Likewise, the delay in the implementation of infrastructure projects may have tempered the demand for machinery and equipment.”

Because of these developments, Neri expects the peso to strengthen over the short term with support from positive trade developments, seasonal inflow of remittances in the fourth quarter and portfolio inflows driven by low inflation.  —DAXIM L. LUCAS