Philippines: Economy gathers pace in Q4 but full-year growth still misses government’s target
The economy grew at the quickest rate in nearly two years in the final quarter of the year, boosted primarily by robust government outlays. GDP expanded 6.4% on an annual basis, accelerating from Q3’s 6.2% expansion and meeting market expectations. In seasonally-adjusted quarter-on-quarter terms, the economy grew 2.2% in Q4, up from Q3’s revised 1.9% growth (previously reported: +1.6% quarter-on-quarter). The fourth quarter’s strong performance pushed up 2019 full-year growth to 5.9% (2018: +6.2%), which was just short of the government’s 6.0%–6.5% target for the year.
An 18.7% surge in public consumption (Q3: +9.6% yoy) propelled growth in the fourth quarter, as the government attempted to catch up on spending goals following the passage of the delayed 2019 budget. Moreover, fixed investment continued to recover, although it remained subdued overall (Q4: +2.4% yoy; Q3: +1.9% yoy). Construction investment remained robust, although investment in durable goods equipment contracted for the third consecutive quarter. On the other hand, private consumption moderated to 5.6% (Q3: +5.9% yoy), but remained healthy overall amid notably lower inflation, a tightening labor market and sustained remittance inflows.
On the external side, exports of goods and services increased 2.0% in annual terms in Q4, accelerating from Q3’s meager 0.7% expansion. The improvement came on the back of a rebound in exports of goods, whereas growth in exports of services weakened. Import growth, on the other hand, recovered slightly (Q4: +0.3% yoy; Q3: -0.2% yoy). Consequently, net exports added 0.8 percentage points to growth in Q4 (Q3: +0.7 percentage points).
Turning to this year, growth prospects should be more favorable. Ramped up government spending related to its “Build, Build, Build” program should continue to buttress growth. Moreover, impetus from lower borrowing costs and fresh liquidity from the reserve-requirement-ratio (RRR) reductions should also continue to drive domestic demand. That said, pressures on the external sector could intensify from capital imports linked to the public infrastructure projects. Meanwhile, developments in the U.S.-China trade negotiations will remain an important factor for the outlook: If tensions continue to deescalate that could be an additional tailwind to growth, and vice versa.
Commenting on the outlook, analysts at Nomura noted:
“We maintain our above-consensus forecast that GDP growth will accelerate to 6.7% in 2020 from 5.9% in 2019. […] Most notably, another budget delay has been averted this year. As a result, we expect the fiscal stance to turn highly expansionary this year. […] In addition, capacity utilization rates are also at record-highs, particularly in the industrial sector, which suggests that, as long as growth prospects remain positive and infrastructure is still being prioritized by the government, private investment prospects should also remain positive, in our view.”