Economic growth in 2019 may fall below 6 percent for the first time since 2011 if the government fails to ramp up spending and investments in the second half, Hongkong and Shanghai Banking Corp. said over the weekend.
HSBC said in a report the continued delay in government spending implied that GDP growth in 2019 was likely to be subdued compared to previous years.
“We expect full-year growth of 6.0 percent, factoring in a considerable pick-up in investment in the second half. Recent data thus far [as of May], however, indicate that infrastructure spending is down 19 percent year-on-year and overall government expenditure is down 5 percent year-on-year,” the bank said.
It said this was in sharp contrast with the previous quarters and implied that public construction in the second quarter might have remained in contraction similar to the first quarter.
“Thus we expect second-quarter GDP growth to remain at sub-6 percent, prompting further policy loosening from the Bangko Sentral ng Pilipinas,” it said.
“Needless to say, a failure by the government to significantly boost spending and investment in the second half poses downside risks to our 2019 GDP forecast. This implies that full-year growth could drop below 6 percent for the first time since 2011,” it said.
The bank said the government was actually well behind its 2019 spending plans due to the budget’s delayed passage in Congress and the midterm elections in May.
HSBC said the deficit target of 3.2 percent of GDP this year might not be met. “We believe the government is unlikely to reach its 3.2 percent deficit target by year-end, even if it were to significantly raise spending in the second half of the year. For context, the average budget deficit in 2018 (when the deficit reached 3.2 percent of GDP) was around P47 billion per month. Since the start of 2019 (through May), the average monthly budget deficit has just been P0.2 billion [P200 million],” it said.
HSBS said this suggested that the monthly deficit would need to average at least P85 billion per month from June onwards for the full-year deficit to reach 3.2 percent of GDP.
The interagency Development Budget Coordinating Council earlier predicted that GDP growth this year would hit between 6 percent and 7 percent. Growth in the first quarter reached only 5.6 percent, slower than 6.5 percent a year ago.
