Angelo Taningco
Economist, Treasury Group

Philippine GDP growth accelerated to 6.8% yoy in Q1—matching the median estimate of 17 analysts in Bloomberg survey (10 in BusinessWorld) and slightly higher than our 6.7% projection—from 6.5% in Q4. However, Q1’s growth rate is below the government’s target range of 7%-8%. Nevertheless, we think this was a solid growth pace, and therefore, assess that the domestic economy could very well absorb a modest monetary tightening, which we think is crucial to help temper rising inflationary pressures.

On the demand side, the main contributors to Q1 GDP growth were household consumption, capital formation, and government spending that combined more than offset the negative growth contribution of trade deficit. Compared to Q4, growth contributions rose for capital formation and government spending amid the Build, Build, Build program whereas dropped for household consumption and net exports amid sharper consumer price inflation.

On the supply side, the main contributors to Q1 GDP growth were services and industry, the former led by wholesale/retail trade followed by finance while the latter spearheaded by manufacturing. Conversely, the agricultural, forestry, and fishing sector’s growth was lethargic, and therefore had marginal contribution. Relative to the previous quarter, the agricultural, forestry, and fishing sector incurred a lower growth contribution whereas industry and services both contributed more in Q1 economic growth.

We continue to see most of the expenditure and production trends witnessed in Q1 to be likely sustained throughout the rest of the year. Against this backdrop, we maintain our full-year 2018 GDP growth forecast of 6.8%.

Figure: GDP Growth Contribution, by Sector

(percent)

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