Angelo Taningco
Economist, Treasury Group
Philippine GDP growth unexpectedly cooled to 6.0% yoy in Q2 from a revised 6.6% in Q1, missing all estimates (Bloomberg’s market median forecast: 6.6%, BusinessWorld: 6.8%, our estimate: 6.7%). As a result, H1 GDP growth levelled off at 6.3%, which is below the government’s target range of 7.0% – 8.0%.
We conjecture that the GDP growth slowdown was largely a result of widening trade-in-goods deficit amid rising inflationary pressures as well as anemic agricultural production. We revised down our full-year 2018 GDP growth forecast by 0.3pp to 6.5%. Meanwhile, we maintain our view that a 50bps policy rate hike is warranted in order to temper rising inflation expectations and avoid further growth slowdown arising from accelerating inflation.
For 2019, we also adjust downward our GDP growth forecast by 0.3pp to 6.7% on the basis of expected future growth not as strong as previously anticipated due to more aggressive monetary tightening measures.
The 0.6pp drop in GDP growth between Q1 and Q2 stems largely from a sharp reduction in the growth contribution of net exports amid widening trade-in-goods deficit as well as a modest reduction in that of household spending. These negative growth contributions on the demand side were partly offset by a strong improvement in capital formation and marginal uptick in government spending (Figure 1).
Figure 1: GDP Growth Contribution, Demand-Side
On the production side, growth contributions of agriculture, industry, and services fell between Q1 and Q2 (Figure 2). Growth of the agricultural sector was anemic; industrial growth slowdown was induced by contraction in mining and slower expansion in manufacturing and utilities; and growth moderation in services was a result of less output increases in communications and transport, retail trade, and real estate.
Figure 2: GDP Growth Contribution, Supply-Side
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