Philippine economy grows below market expectations in Q2 2019, growth likely to bounce-back in H2

Philippine economic growth came below market expectations in the second quarter. On a year-on-year basis, the GDP grew 5.5 percent, the softest since the first quarter of 2015. Domestic demand growth dropped to 2.6 percent on a year-on-year basis in the second quarter from first quarter’s 7.5 percent, adding only 2.8 percentage points to overall growth.

Component wise, private consumption growth eased to 5.6 percent year-on-year from 6.1 percent previously. Public consumption decelerate to 6.9 percent year-on-year, from first quarter’s 7.4 percent. Significantly, construction investment continued to ease, while investment in durables contracted sharply by 13 percent year-on-year. Overall gross fixed capital formation contracted 4.8 percent in the year, the first negative print since fourth quarter 2011, reflecting the lingering effect from the delay in enacting the 2019 budget.

Export growth eased to 4.4 percent year-on-year in the second quarter, in the midst of softer external demand, especially for technology products. In the meantime, the contraction in investment was reflected in significantly lower import growth. This resulted in a smaller net trade deficit that added 2.7 percentage point to growth in the second quarter.

Meanwhile, growth in industry dropped further to 3.7 percent in the second quarter from 4.8 percent in the first quarter, upon further softness in the construction sector and easing manufacturing activity. Services growth accelerated to 7.1 percent year-on-year due to stronger growth in ‘trade and repair of vehicles and household goods’ and ‘other services’.

“Looking ahead, we expect some bounce-back in growth in the second half of the year”, said ANZ in a research report.

Sequentially, government consumption picked up in the second quarter although this did not filter into investments, likely reflecting the allocations to recurrent expenditure rather than capital outlays. Government spending is expected to pick up in the second half along with a resumption of the government’s infrastructure program which should underpin a recovery in investment.