Q3 seen as economic turning point

October 29, 2019

Improvement in government expenditures is expected to boost domestic growth to the six percent level starting in the third quarter this year after the slowdown in the first half, according to an economist of a local bank.

Michael Ricafort of Rizal Commercial Banking Corp. said the hike in government expenditures “could already reflect government’s catch up spending, especially on major infrastructure projects finally taking effect”.

Following the delay in the approval of this year’s national budget, which was only signed into law mid-April, domestic growth, as measured by GDP, decelerated to 5.6 percent in the first quarter of the year from 6.3 percent in the last quarter of 2018.

Growth further slowed to 5.5 percent in the second quarter, bringing the first half output to 5.5 percent, lower than the government’s 6-7percent target band.

The government thus implemented a catch-up spending program, which tasked both the Department of Public Works and Highways and the Department of Transportation, particularly to hasten the implementation of their respective infrastructure projects.

Economic managers believe that this catch-up spending program would allow the domestic economy to post better results in the second half of this year and meet the full-year growth target.

With government spending growth posting an upsurge last September, Ricafort forecast some pickup in growth in both the third and fourth quarters “possibly above +6 percent”.

“Thus, the GDP growth target of at least 6 percent for 2019 remains achievable, provided that the rapid increase in government spending, especially the catch up spending on major infrastructure projects, is sustained for the rest of the year,” he said.

Bureau of the Treasury data show that state spending jumped by 39.01 percent to P415.1 billion year-on-year last September, a far cry from the 8.78-percent growth last August.

In the first nine months this year, spending grew by 5.5 percent to P2.626 trillion which, however, was short of the P2.684 trillion programmed for the period.

Ricafort noted the drop in local interest rates, after a total of 75 basis points reduction in Bangko Sentral key policy rates so far this year, is a plus for the domestic economy.

Another boost to domestic growth is the series of cuts in banks’ reserve requirement ratio, with that of the big banks slashed by a total of 400 basis points.

“This could have also started encouraging borrowers such as business, consumers, government, and other institutions to become more aggressive in their borrowing/financing activities that could lead to more investments, spending, greater economic activities, and faster economic/GDP growth,” the RCB economist  further said.

“Going forward, the national government's catch up spending on infrastructure to make up for the economic slowdown earlier in 2019 as well as its cash-based budgeting system (with a one-year validity) would further help accelerate infrastructure spending in the coming months and could even spill over into next year (2020), thereby the benefits of faster economic/GDP growth could even be better reflected by then,” he added.