For the second time this year, global debt watcher Moody’s Investors Service trimmed its growth forecast for the Philippines in 2019 to 5.8 percent from a previous estimate of 6 percent made in May, taking into account the economy’s lackluster performance in the first half.
Economic growth eased further to 5.5 percent in the second quarter of 2019, marking the slowest rate of expansion since early 2015.
It was also slower than 5.6 percent a quarter ago. The figure brought the average growth in the first half to 5.6 percent, well below the 6-percent to 7-percent target range earlier set by the government.
Moody’s said in a report Friday the budget delay exacerbated external weakness, and although domestic demand was seen to recover, it would not be enough to propel growth to at least 6 percent for the year.
“Our expectation of a recovery in domestic demand in the second half of this year and into next year underpins our full-year forecasts for real GDP growth of 5.8 percent in 2019 and 6.2 percent in 2020,” Moody’s said.
Moody’s in May reduced its economic growth assumption for the Philippines this year to 6 percent from 6.2 percent due to the slower-than-expected 5.6-percent expansion in the first quarter.
Moody’s senior credit officer Christian de Guzman announced the downward revision in an economic forum conducted by the Economic Journalists Association of the Philippines in partnership with the Aboitiz Group in Makati City on May 29.
Moody’s further said in the report while the growth of the exports of goods and services decelerated on account of weaker external demand, much of the slowdown in the first half was driven by government spending.
“After growing at a double-digit pace since late 2017, both government consumption and public construction slowed dramatically in the first two quarters of this year because of the delay in passing the budget law for 2019,” it said.
“The rise in government consumption slumped to 7.1 percent in the first half of this year from 13.5 percent in the second half of 2018, while public construction contracted 22.1 percent from a 17.5-percent increase over the same period,” it said.
Following the approval of the 2019 budget in April and the subsequent ban on spending ahead of the midterm elections in May, the government has sought to accelerate budgetary spending over the remaining months of the year.
At the same time, Moody’s said stable remittance inflows, low inflation, and historically low unemployment would support household consumption.
Also on Friday, Finance Secretary Carlos Dominguez III expressed confidence that economic growth could strongly rebound in the second half as the Duterte administration’s catch-up spending strategy picks up in the third and fourth quarters.
He also sees growth partly driven in the year’s remaining half by stronger domestic consumption amid the continued slowdown in headline inflation, which fell to a two-year low of 2.4 percent in July.
In a reaction following the Philippine Statistics Authority report Thursday that showed GDP further slowed to a four-year low of 5.5 percent in the second quarter, Dominguez said the April-to-June result was “not unexpected,” given the residual effects of the four-months-and-a-half delay in the passage of the 2019 national budget by the House of Representatives.
“Second-quarter growth was not an unexpected result given the apparent lingering impact on the government’s accelerated spending program of the four months-and-a-half delays in the passage of the 2019 budget in the House of Representatives. This delay was further exacerbated by the ban on infrastructure projects during the election campaign,” Dominguez said.
