Angelo Taningco
Economist, Treasury Group

Philippine government exceeded its Q1 disbursement target on the back of its strong spending for personnel services and infrastructure/capital outlay projects. This supports our view that GDP growth has remained robust last quarter, likely to have sustained its above 6% trend. However, we assessed that despite strong expenditures and construction activity by the government sector, other components of the domestic economy—such as agriculture, household spending, and net exports—may not have performed as strongly as expected. Against this backdrop, we think Q1 GDP growth may have missed the government’s target range of 7%-8%, with our point estimate forecast currently at 6.7%.

Q1 government expenditures totaled P782 billion, a 30% jump yoy and has exceeded its target for the quarter by P26.2 billion. Current operating expenditures—which accounted for 74% of total government disbursements in Q1—grew 22.2% yoy to P579.9 billion, which surpassed its programmed amount by P16.0 billion. A key component of current operating expenditures is personnel services, which expanded 23% to P206.6 billion partly due to the salary hikes in uniformed personnel and funds allotted for salaries and poll watchers assigned to the upcoming barangay elections scheduled in May, according to the Department of Budget and Management (DBM).

Government’s infrastructure and capital outlay spending has also surged in Q1, recording 34% yoy growth to level off at P157.1 billion, which is P13.7 billion more than the target. This accounted for 20% of government’s total spending for the quarter. DBM reported that implementation of road infrastructure projects, construction of police stations, and rehabilitation of school facilities were major contributors to public infrastructure expenditures.

Aside from public construction, we also saw strong performance by the manufacturing sector as depicted by its double-digit output growth and rising Purchasing Managers’ Index (PMI). Services sector may have expanded at a buoyant pace. However, we also noticed other components of the domestic economy appearing not to have contributed as strongly as expected. For instance, we have observed supply disruptions in select food items during Q1 that in turn have contributed to higher food price inflation; such development may exemplify sluggish agricultural performance. On the demand-side, we witnessed weakening of consumer confidence partly arising from accelerating inflation; this, we think, may have dampened household spending. Moreover, monthly merchandise trade data exhibited anemic export growth and strong import growth, potentially dragging net exports’ growth contribution. With this, we think Q1 GDP growth may have missed government’s target range of 7%-8%, with our point estimate forecast currently at 6.7%.

Figure: Public Infrastructure & Capital Outlay Spending, Actual & Program

(P billion)

Disclosures Appendix
This material is confidential and intended for suitable counterparties. The data and information provided in this report accurately reflect the personal views of the specialists or were obtained from public sources believed to be reliable. No representation or warranty as to its accuracy or completeness, express or implied is hereby made, and the investor should not rely thereon without making any independent analysis or research on any topic therein. Any opinion or advice expressed herein may change without notice.

This report is not to be taken as an offer to sell or buy securities or any investment. Security Bank Corporation denies any liability that may arise out of any loss or may result in actual, direct or consequential damage from the use or reliance on any material hereof. Reproduction of this material, whether in whole or in part, is strictly prohibited without the prior consent of Security Bank Corporation. Security Bank Corporation, its directors, officers or staff or any of its subsidiary or affiliates may have taken a short or long position in any investments or securities mentioned herein upon the presentation of this report and may buy or sell the investments or securities at any time in the open market or otherwise, either as broker, dealer, principal or agent. You hereby acknowledge that you have read and understood this Disclaimer and agree to be bound by the conditions therein.