GDP growth to miss goal, but not ‘bad’

by Elijah Joseph C. Tubayan, BusinessWorld, Aug 24, 2018

GDP growth to miss goal, but not ‘bad’

MERCHANDISE exports and manufacturing will weigh on growth, though investments will provide the lift, according to top economists of the Ateneo de Manila University.

PHILIPPINE economic growth will likely fall short of the government’s 7-8% target until next year, due to a sustained slowdown in exports and weak manufacturing, even as strong capital formation should help gross domestic product (GDP) expand in line with potentials, economists of the Ateneo de Manila University said in a briefing on Thursday.

The economists projected 6.1-6.3% GDP growth this year and 6.2-6.5% in 2019.

“Manufacturing at the second quarter shows a disappointing slowdown to 5.6% but they have always been averaging 7-8% since 2010. So there seems to be some alarming signals also coming from the manufacturing sector,” economics professor Cielito F. Habito, himself a former socioeconomic planning secretary from 1992 to 1998 under former president Fidel V. Ramos, said during the Ateneo Economic Briefing 2018 in Makati city.

He also noted that “[a]ll our neighbors are expanding their exports but we are shrinking ours.”

Latest available Philippine Statistics Authority (PSA) data showed merchandise export sales dropping 3.8% to $32.732 billion last semester from $34.035 billion in 2017’s first half.

GDP grew 6.3% last semester, compared to the year-ago 6.6%, and needs to expand by 7.7% this semester to reach the bottom end of the government’s official target band (compared to second quarter 2017’s 6.8%).

“Where are the sources of growth right now? We’re seeing it more right now in investment spending and that, to the large extent, is government spending on construction,” said Mr. Habito.

“And then we are also seeing it in the supply side in industry.”

At the same time, Ateneo economist Alvin P. Ang said that the projected six-percent GDP expansion is still aligned with the country’s growth potential, based on a “steady-state analysis on the sustainable growth of the economy.”

Still, he said there could be faster growth over the medium to long term as the country has been accumulating capital equipment.

“If you look at the growth potential of the Philippines, it’s about 6.3%. Kaya tayo bumabalik diyan kasi ‘yan ang (GDP growth is returning to that pace because that is the) potential at the moment, so we need the infrastructure to increase that potential,” he explained.

“We’re not actually doing bad over the long term. We are just in line with our potential growth, so we need to invest in infra to increase potential growth,” he added.

“If you look at the GDP second quarter, growth slowed down. But growth in durable equipment did not, tumaas pa (it picked up). That means they’re buying equipment. They may not be using it now, but they are investing. So it’s like expanding capacity. I’m not worried there.”

Capital formation grew 16.4% last semester, compared to 9.5% in 2017’s first half, according to PSA data. Growth of investment in construction picked up to 11.6% compared to 7.5% in the same comparative six-month periods, while that of investment in durable equipment quickened to 17.1% from 11%.

“The challenge is not that we’re not growing by seven percent because seven percent is way above our potential. So ok na lang ako sa nag-invest sa durable equipment, you are building roads, then you are expanding potential,” said Mr. Ang.

“A lot of the imports are really going to construction and durable equipment That we need. But our exports are really weak.”

Mr. Ang also said that “inflation played a part” in his group’s economic growth forecast, with the headline pace expected to average five percent by end-2018, above the central bank’s 2-4% target range and 4.9% upgraded full-year forecast for 2018.

“We’re expecting prices to be higher, so… if you are an investor, you will wait a little bit,” he said, while noting that the central bank has managed to temper inflation expectations after three consecutive rate hikes by a total of 100 basis points from May to August.

Mr. Ang also said that inflation may peak around September or October, hovering around the multi-year-high 5.7% recorded in July. —