Philippines: Economic growth picks up slightly in the fourth quarter
The economy continued to grow at a steady pace in the final quarter of the year, with GDP growth expanding 6.1% in annual terms. This was a notch above the third quarter’s revised 6.0% print (previously reported: +6.1% year-on-year), although missed market expectations of 6.2% growth. On a seasonally adjusted quarter-on-quarter basis, the economy expanded 1.6% in Q4, accelerating from Q3’s revised 1.5% reading (previously reported: +1.4% quarter-on-quarter). All told, the Filipino economy grew 6.2% in 2018 (2017: +6.7% yoy); this marked a three-year low and was also below the government’s 6.5–6.9% target, although the Philippines still remained one of the fasting growing economies in the region, nonetheless.
The meager pick-up in Q4 came primarily on the back of stronger household spending and a positive contribution from the external sector. Private consumption grew 5.4% year-on-year in Q4 (Q3: +5.2% yoy), supported by a tighter labor market and easing inflation. Meanwhile, government spending remained brisk as the government’s “Build, Build, Build” infrastructure program remains a key driver of the economy, although growth moderated from Q3 (Q4: +11.9% yoy; Q3: +14.3% yoy). Fixed investment also slowed in the quarter, growing 9.8% year-on-year, down from a robust 17.4% expansion in Q3. The softer print was primarily due to much weaker durable equipment investment whereas construction investment growth accelerated to nearly 20%.
Looking at the external sector, export growth was relatively stable in the quarter (Q4: +13.3% yoy; Q3: +13.2% yoy). Import growth, on the other hand, eased notably, in line with softer investment spending and partially due to cheaper oil imports (Q4: +11.8% yoy; Q3: +17.9% yoy). This led to the first positive contribution to GDP growth from the external sector in three quarters, contributing 2.2 percentage points to the headline print.
Looking to 2019, the economy is expected to settle into a softer pace of expansion. While household spending should sustain solid growth this year, higher borrowing costs and still-high inflation will limit prospects. Moreover, government expenditures, which were one of the key drivers of growth in 2018, will likely soften, particularly if the impasse over the 2019 budget wears on. In fact, the budget department estimates that if the reenacted 2018 budget is maintained for the whole year, growth could be cut as much as 2.3 percentage points, with an estimated loss of 600,000 construction jobs and thousands being pushed into poverty. Moreover, following a weaker performance for exports in 2018, export-oriented sectors will continue to face intensifying headwinds in 2019 from persisting trade protectionism and a slower Chinese economy.