Philippines: Growth slows to three-year low in Q2 on higher imports
August 9, 2018
The economy decelerated markedly in the second quarter, with annualized GDP growth reaching a three-year low of just 6.0%. The reading was lower than Q1’s downwardly revised 6.6% growth (previously reported: +6.8% year-on-year) and significantly undershot market analysts’ expectations of 6.7%. The deceleration was largely due to the external sector, which posted a large negative growth contribution as imports surged, while the momentum of the domestic economy remained strong.
Indeed, domestic consumption dynamics were largely steady in the second quarter, despite mounting inflationary pressures which weighed on purchasing power. Private consumption growth came in at 5.6%, down slightly from Q1’s 5.7% print, while government consumption slowed from the 13.6% growth logged in Q1 to 11.9% in Q2. This marked the third consecutive quarter of double-digit growth in public expenditure, largely thanks to the government’s infrastructure investment program. Overall, total consumption growth in Q2 reached 6.6%, down from Q1’s 6.7%. Meanwhile, the government’s infrastructure plan also boosted fixed investment spending growth, which accelerated significantly from 8.8% in Q1 to 21.2% in Q2.
However, while higher government spending benefited domestic dynamics, it also contributed to the deterioration of the external account. Although growth in exports recovered from Q1’s weak print of 6.5% to a more robust 13.0% in Q2, import growth surged in the same period, from 9.6% in Q1 to 19.7% in Q2, notably as more capital goods were imported for the construction of public infrastructure. Government officials also indicated that the closure of the highly touristic island of Boracay in early April put a dent in the growth of services exports, which increased only 9.6% year-on-year after growing 16.4% in Q1. Overall, these effects led the external sector to post another negative contribution to GDP growth.
Author: Joffrey Simonet, Economist