Philippine economic growth contracted to 5.5% in Q2

Private consumption and government consumption both slowed down.

The Philippines’ GDP growth moderated to 5.5% YoY in Q2, as compared to the 6.2% recorded in Q2 2018, according to the Philippine Statistics Authority.

This quarterly figure was also lower than Bloomberg estimates. Growth momentum has reversed in the quarter as it accelerated to 1.4% QoQ from a downwardly revised pace of 0.6% in Q1.

The main drivers of growth were trade and repair of motor vehicles, motorcycles, personal and household goods, manufacturing and other services. Services had the fastest growth with 7.1% YoY whilst the industry segment registered 3.7%. Agriculture, hunting, forestry and fishing rose 0.6% YoY.

All drivers from the expenditure side slowed down. Private consumption growth in Q2 was at 5.6% YoY, from 6.1% in 2018 and government consumption at 6.9% YoY, a contraction from 7.4% over the same period. Gross fixed capital formation dipped 4.8% YoY from a 6.4% growth.

Net primary income (NPI) from the rest of the world and gross national income (GNI) rose 3.1% and 5.1%, respectively.

With the country’s projected population reaching 107.9 million in Q2, per capita GDP grew by 3.8%, whilst per capita GNI and per capita Household Final Consumption Expenditure (HFCE) posted corresponding growths of 3.5% and 3.9%.

“Today's GDP print painted a clear picture that weak investment is dragging the Philippine economy. We have previously noted that this likely to be the case, given the delayed passage of the 2019 fiscal budget; the midterm elections in May, which prevented the government from spending on new projects; and higher bank lending rates in the first half of the year as a result of policy rate hikes by the Bangko Sentral ng Pilipinas (BSP) in 2018,” said Noelan Arbis, economist at HSBC Global Research.

Arbis also noted that construction activity fell 0.6% during the quarter, the only sector that moderated. This was blamed on a larger decline in public construction activities, which dropped 26% YoY.

However, the country’s economic growth is expected to pick up in H2, given a reversal of the factors that dragged investment in H1.

“We forecast full-year GDP growth of 6.0% in 2019, implying an acceleration of growth in the second half, although a weaker-than-expected bounce in infrastructure spending poses downside risks,” Arbis continued.