PH needs to ‘rev up’ for 2019 growth target
Credit to Author: Anna Leah E. Gonzales| Date: Fri, 08 Nov 2019 16:19:59 +0000
INCREASED consumption, spending and capital formation would help the Philippines hit the lower end of the government’s 6- to 7-percent target range this year, an analyst from ING Bank Manila said.
In a statement, ING Bank Senior Economist Nicholas Antonio Mapa said the country would “be making a mad dash to the finish line, with [the] PSA (Philippine Statistics Authority) indicating that 4Q (fourth quarter) GDP (gross domestic product) will need to clock in at 6.7 percent for the Philippine economy to get its nose right past the 6-percent finish line.”
“With little than a month and a half before the checkered flag is waved, the Philippines will have to rev up [its] engines to get to the 6 percent finish, counting on all sectors of the economy, consumption, government spending and lastly capital formation — the missing link — to deliver a photo finish for the checkered flag,” he added.
The Philippine economy grew by 6.2 percent in the third quarter of the year from 6.0 percent a year ago, driven by growth in government spending and consumption. But capital formation contracted for the second consecutive quarter this year.
Mapa said that while capital spending had been a big driver of growth for 27 straight quarters, that “string” this year.
“With the successive quarters of strong gains for capital formation, the Philippines saw a new stage of growth with the investment-driven expansion helping deliver the stellar string of 6-percent growth prints that we have recently been witness to,” he said.
“Construction, road vehicles and capital machinery arrived in troves, bloating the trade deficit but showcasing the investment boom that could help propel the economy to a higher growth path,” the economist said.
“That string ended in 2019 and has yet to recover. Successive bouts of policy rate hikes and the subsequent tightening in liquidity conditions have sapped investment appetite from corporates to households alike while the budget delay, which stymied government construction outlays, could not have come at a worse time. The result? An underperforming economy as the Philippines apparently lost its mojo.”
Capital formation has been the “missing link” for the Philippines growth story, according to Mapa.
“Had capital formation remained in positive territory, overall Philippine GDP may have easily cleared the 6 percent handle, but with the sector posting twin contractions, growth has been held back. The weakness in capital formation can be traced largely to the pullback in durable equipment investment, posting contractions of -12.8 percent in 2Q and 9.1 percent in the 3Q,” he said.
According to Mapa, growth drivers for this year include robust consumption spending, as inflation is likely to remain below or at the lower end of the target.
“Government spending has shown the ability to roll out spending for both construction activity and operating expenses, as evidenced by the 39-percent surge in September. Thus, the missing link to the Philippine economic engine firing on all cylinders is for the capital formation cog to start churning like it did in the recent past,” he said.