Security Bank Corp., the sixth-largest lender in terms of assets, expects gross domestic product growth in the second quarter to be stronger than 5.6 percent in the first quarter but not enough to go beyond 6 percent because of the sluggish government spending.
Security Bank chief economist Dan Roces said GDP growth would likely reach 5.9 percent in the April-to-June period.
“We expected real GDP growth in the second quarter to rebound following a sluggish first quarter. However, leading indicators suggest otherwise and as such, second-quarter [GDP] is bound to be unremarkable,” Roces said.
Hongkong and Shanghai Banking Corp. also said GDP growth would likely to remain below 6 percent in the second quarter, “prompting the BSP [Bangko Sentral ng Pilipinas] to further cut [policy] rates at its upcoming meeting.”
Roces said the sluggishness in the economic growth was mostly due to reduced government spending because of the delay in the approval of the 2019 budget which was signed only in April, followed by a spending ban ahead of the mid-term elections on May 13.
“The government vowed to implement a catch-up spending plan post-elections to mitigate the impact to little effect as government spending fell by 2.3 percent year-on-year to around P812.2 billion in the second quarter. In fact, government spending was at a surplus for April and May, and only reverted to the deficit by June suggesting that the effects of the delayed budget have crept into the quarter,” Roces said.
He also said that the growth in the imports of capital goods between April and May were relatively flat (by 0.03 percent year-on-year), which suggested tepid developments in the “Build, Build, Build” infrastructure program of the Duterte administration.
“Overall, this means that the second-quarter growth will be hard-pressed to reach or exceed 6 percent, with lackluster government spending continuing to be the main drag; despite a rebound in private consumption because of tapering inflation,” he said.
Inflation averaged 3.4 percent in the first half, well within the target range of 2 percent to 4 percent set by the Bangko Sentral ng Pilipinas. Inflation peaked at 6.7 percent in October 2018.
Roces, however, said government spending would likely accelerate in the second half as the infrastructure spending program got underway with the release of funds for several projects.
He said inflation was on a downtrend, thus aiding private consumption. He said that as capital goods import increased with higher demand due to the government’s infra program, the trade deficit was expected to widen.
Roces said with the second-quarter GDP unlikely to make a significant rebound and inflation expected to decelerate, and follow the US Federal Reserve’s landmark 25 basis-point cut, the Monetary Board of the BSP might resume its rate cuts as well on the Aug. 8 meeting by 25 basis points to 4.25 percent.
“More importantly, the 200 bps RRR cuts to 16 percent has already been fully implemented, and with liquidity conditions slowly recovering more RRR cuts are prudent to aid in money supply while sticking to their target of single-digit RRR rates by 2023,” Roces said.