Philippines: Economy revs up in Q3 for the first time this year
The economy turned a corner in the third quarter as growth accelerated for the first time this year. GDP expanded 6.2% year-on-year in Q3, up from the 5.5% expansion in Q2 and surpassing market expectations of 6.0% growth. In seasonally-adjusted quarter-on-quarter terms, the economy grew 1.6% in Q3, accelerating from Q2’s 1.4% print.
The pick-up in Q3 was driven chiefly by robust domestic demand. Most notably, fixed investment rebounded from the second quarter’s eight-year low (Q3: +2.1% year-on-year; Q2: -4.6% yoy), driven by a surge in construction investment and despite a sharp contraction in investment in durable goods equipment. Government consumption strengthened (Q3: +9.6% yoy; Q2: +7.3% yoy), as had widely been expected, following the passage of the delayed 2019 budget which unleashed delayed funding for public infrastructure projects. Furthermore, private consumption growth also sped up, likely boosted by noticeably softer inflation in the period and solid remittance inflows.
Exports of goods and services increased a negligible 0.2% year-on-year in Q3, slowing markedly from Q2’s 4.8% expansion and marking the worst result in over six years amid the global tech downturn and ongoing U.S.-China trade tensions. Import growth, meanwhile, was flat in Q3, contrasting the 0.1% contraction in Q2. Imports were likely also dented by delayed infrastructure spending from the budget deadlock as imports of goods dipped in the quarter. Overall, the external sector consequently made no contribution to GDP growth in Q3 (Q2: +3.4 percentage points).
Looking ahead, the economy should continue to gather momentum as the government ramps up public spending linked to its “Build, Build, Build” program as part of its bid to reach the lower end of its 6.0–7.0% growth target for 2019. Moreover, tailwinds from lower borrowing costs, fresh liquidity from the reserve-requirement-ratio (RRR) reductions, and weaker inflation should also continue to fuel domestic demand. Nevertheless, headwinds caused by the prolonged U.S.-China trade rift and a frail global tech sector will likely continue to dampen demand for Filipino exports.
Commenting on the outlook, Nicholas Mapa, senior economist at ING, noted:
“Going forward, we can expect the trade gap to widen but this may actually be a welcome sign should imports of machinery and durable equipment return to help drive the investment engines of the Philippine growth story. […] Monetary easing and improving investor sentiment will likely lift capital formation to close out the year with an accelerated pace of capital formation growth expected in 2020.”