Philippine economic growth accelerates in Q4 2019 on strong public consumption and investment

Philippine economic growth accelerated to 6.4 percent year-on-year in the fourth quarter from 6 percent seen in the prior month, owing to the strengthening public consumption and investment. On a quarter-on-quarter basis, the economic growth accelerated to 2.2 percent from 1.9 percent. The consensus expectations were for the economic growth to come in at 2 percent sequentially.

Domestic demand growth remained strong at 5 percent year-on-year in the final quarter, accelerated slightly from 4.9 percent in the prior quarter. Domestic demand positively contributed 5.6 percentage points to the overall growth. Meanwhile, private consumption growth slowed to 5.6 percent year-on-year from 5.9 percent recorded in the prior quarter.

Public consumption growth accelerated to 18.7 percent year-on-year from 9.6 percent year-on-year in the third quarter. Construction investment stayed elevated at 11.8 percent year-on-year in the fourth quarter, driving gross fixed capital formation to 2.4 percent year-on-year after a rise of 1.9 percent seen previously.

Meanwhile, export growth accelerated to 2 percent year-on-year from third quarter’s 0.7 percent. Imports also rebounded with strong domestic demand. Net trade’s contribution to the overall growth stayed widely stable in the fourth quarter at 0.8 percentage points.

On the supply side, growth in services accelerated to 7.9 percent year-on-year from third quarter’s 6.7 percent, partially buoyed by more solid tourist arrivals. Manufacturing activity rose to 3.7 percent year-on-year. This was partly countered by slower growth in agriculture and related components, which were affected by weather and natural disasters.

For the whole of 2019, the Philippine economy grew 5.9 percent year-on-year, a bit below the lower end of the government’s growth target of 6 percent to 7 percent.

“Given the government’s ambitions of 6.5-7.5 percent growth in 2020 and comments from BSP Governor Diokno stating the BSP has “enough monetary space”, it is possible the central bank may ease its policy rate by 25bps as soon as its February meeting. Although inflation overshot consensus expectations in January, it largely reflects a temporary increase in food prices following weather-related crop damage. We expect year average inflation in 2020 to remain within the BSP’s target band”, said ANZ in a research report.