Growth slows to 5.6% in Q1

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Metro Manila (CNN Philippines, May 9) — Economic growth softened to 5.6 percent in the first quarter, reeling from a delayed budget and weak exports to mark a four-year low.

The pace is softer compared to the 6.3 percent tallied in the last three months of 2018 and the 6.5 percent growth reported for January-March last year. It also settled well below the 6.1 percent median estimate of economists in a CNN Philippines poll.

This is likewise the slowest pace since the first quarter of 2015, when growth logged at 5.1 percent.

The Philippine Statistics Authority (PSA) said government spending grew by just 7.4 percent from January-March versus 13.6 percent a year ago. Public construction even contracted by 8.6 percent.

Secretary Ernesto Pernia of the National Economic and Development Authority (NEDA) attributed the growth slump to delayed projects due to the late passage of the 2019 budget, which was only signed April 15.

"As we have forewarned repeatedly, the re-enacted budget sharply slowed down the pace of our economic growth. We estimate that we should have grown by as much as 6.6 percent this first quarter if we were operating under the 2019 fiscal program," Pernia said during a press briefing.

The government operated on a reenacted 2018 budget during the first three months of the year, leaving new and continuing projects unfunded. Economic managers flagged that this will greatly pull down public spending, with the NEDA seeing that full-year growth could settle at just 6.3 percent should the budget take effect by April.

READ: Economic managers revise growth target downward over budget delay

"The delay in the release of the budget, it's really going to be adverse in terms of the effect on government spending. Government spending is a very powerful stimulus to the economy," Pernia said, adding that agencies are still waiting for a new circular from the Department of Budget and Management to access their funding.

Pernia said authorities should likewise consider postponing the cash-based budgeting system, as it leaves little time for agencies to spend funds and pay suppliers as allocations are only valid until the end of the year. He added that it would be "advisable" to also remove the 45-day ban on public works ahead of any general elections.

On the other hand, household spending picked up to 6.3 percent from 5.6 percent previously. The NEDA said this is due to improved consumer sentiment and slower price increases.

Export growth also decelerated to just 5.8 percent last quarter versus 10.3 percent last year. Imports likewise softened to 8.3 percent from 11.3 percent in January-March 2018.

On the supply side, the industrial sector posted the biggest growth slide at 4.4 percent versus 6.6 percent in the previous quarter. Services picked up to post a seven percent expansion, coming from 6.8 percent previously to become the biggest contributor to growth, according to PSA officer-in-charge Assistant Secretary Josie Perez.

Meanwhile, agriculture grew by a mere 0.8 percent year-on-year, compared to 1.8 percent in the fourth quarter. The PSA reported that farm output stood flat in the first quarter, picking up by just 0.67 percent year-on-year.

Pernia flagged the need for government to take steps to mitigate the impact of El Niño, which is seen to last until August.

The government is looking to grow the economy by 6-7 percent this year following 2018’s 6.2 percent climb. Growth needs to be at least 6.1 percent in the next three quarters to hit this goal, Pernia said, deeming it still "achievable."

"We're really looking at the second half for government to really perform," NEDA Undesecretary Rosemarie Edillon added.

All eyes are now on the Bangko Sentral ng Pilipinas (BSP), with its seven-member Monetary Board set to decide on interest rates Thursday afternoon. Analysts in a CNN Philippines survey are torn about the decision, saying that cuts to both the key policy rate and bank reserves are possible.

"A 'pro-growth, data-dependent' BSP will factor in the support needed by the trade/industrial component. Lower interest rates and availability of cash are important inputs in industrial formation," said Security Bank economist Robert Dan Roces.

"With these, the unanticipated GDP number now boosts the odds of both a rate cut and an RR (reserve requirement) slash in tonight’s monetary policy meeting," he added.