Budget delay trims GDP growth to slowest in 4 years

ABS-CBN News

Posted at May 09 2019 10:16 AM | Updated as of May 09 2019 12:39 PM

Construction workers are seen in one of the many building sites in the Philippine capital. Mark Demayo, ABS-CBN News

MANILA -- (UPDATE) The Philippine economy grew at its slowest pace in 4 years, missing forecasts, dragged by a delay in the enactment of the P3.7-trillion national budget, officials said Thursday.

Gross domestic product grew 5.6 percent in the first quarter, from 6.3 percent in the October to December period. The median of a Bloomberg poll predicted 6 percent growth while a Reuters survey placed it at 6.1 percent.

Growth would have accelerated to 6.6 percent had the country operated on the 2019 budget at the start of the year, said Socioeconomic Planning Secretary Ernesto Pernia.

"As we had forewarned repeatedly, the reenacted budget would sharply slow the pace of economic growth," Pernia said.

It was the slowest growth in 16 quarters, since the 5.1-percent expansion in the first quarter of 2015, he said, adding the government must "really catch up and work very hard" to meet its growth target for the year.

Pernia said Bangko Sentral ng Pilipinas Gov Benjamin Diokno inquired about the first quarter GDP numbers earlier Thursday. The BSP will hold its policy meeting later in the day and some analysts expect it to start cutting interest rates.

"What is the growth rate?" Pernia quoted Diokno as saying. "They want to already think about what to do to ramp up economic growth in the succeeding quarters."

Pernia noted that Diokno had signaled a "pro-growth" stand in his first public comments as BSP governor.

BUDGET DELAY

The country operated on a reenactment of the 2018 budget until President Rodrigo Duterte signed this year's spending plan in April. Lawmakers had wrangled over alleged "insertions" in the 2019 budget bill.

Finance Secretary Carlos Dominguez on Wednesday said the country "missed spending P1 billion a day" until the 2019 budget was signed.

"If we continue getting good weather, we will definitely catch up. Unfortunately, I can't predict the weather. If the weather goes bad, we will have problems. That's why it is very important for us, even for the next budget, to pass it on time," he said.

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With the 2019 budget in place, "We should see better numbers for the balance of 2019," said BPI lead economist Jun Neri.

The government should "step in" to address the weakness in exports, another drag on growth, Neri told ANC.

Neri said the BSP could cut either the benchmark rate of the RRR later Thursday or slash the RRR by 2 percentage points.

The BSP could cut the benchmark rate by at least 25 basis points and the RRR, by one percentage point, later Thursday, said BDO Unibank chief investment strategist Jonas Ravelas, who gave a 6.1 percent growth forecast.

Inflation in April was at 3 percent, slowing for the sixth straight month and settling within the BSP's 2 to 4 percent goal for the third straight month.

"The most important word now is timing," Ravelas told ANC's Market Edge.

The market is comfortable with the current peso-dollar exchange rate, inflation is slowing and economic managers need to catch up on spending that was stalled by the budget impasse, Ravelas said.

Investors will be watching how Duterte will use his majority in the House and the Senate to pursue the Philippines' first ever "A" credit rating, he said.

"I don't see the elections as a key event, I think it's a non-event. I think what people are waiting for is clean and honest elections," he said, referring to the midterm vote on Monday.

GDP growth at 5.6 percent is the slowest since 2015 Q1's 5.1 percent. This ends the Philippines' 15 straight quarters of at least 6 percent growth. It is also the slowest under the Duterte administration. ABS-CBN Data Analytics
On the supply side, services grew the fastest at 7 percent. Industry expanded by 4.4 percent, its slowest pace since 2011 Q4's growth of 2.9 percent. ABS-CBN Data Analytics
On the demand side, household consumption rebounded to 6.3 percent as inflation eased. However, government expenditure and capital formation both slowed. ABS-CBN Data Analytics