By Cai Ordinario, October 2 2019; Business Mirror
Image Credit to Business Mirror
THE recent deceleration of inflation and recovery in government spending augured well for the economy and will likely boost GDP until next year, according to local economists.
In the latest Market Call report, inflation in September likely hit 1.5 percent and this may have boosted growth to 6 percent in the third quarter and 6.5 percent in the fourth quarter.
“The huge job gains, inflation expected to go below 1.5 percent by September, and the revival of NG spending augurs well for faster GDP growth in H2. Specifically, we expect it to expand by 6 percent in the third quarter and accelerate further to 6.5 percent in the fourth quarter,” First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) Capital Markets Research said.
FMIC-UA&P Capital Markets Research said that while national government spending already grew 3.4 percent in July, they still expect it to further increase in the last quarter of the year.
The think tank said infrastructure spending as of July 2019 still fell short by 11 percent to P75.2 billion compared to July last year, with the lingering impact of the delay in the 2019 budget approval seen as a key factor.
FMIC-UA&P Capital Markets Research remains confident that the government’s catch-up plan will gain traction in the second half of the year.
“National government spending finally returned to the positive growth territory in July, albeit mildly. However, it suggests that the kinks introduced by the delayed budget approval are being fixed and we should start seeing double-digit gains by August,” FMIC-UA&P Capital Markets Research said.
For its part, the outlook of UnionBank’s Economic Research Unit (ERU) was also as rosy, as it sees third quarter GDP reaching 6.1 percent; fourth quarter growth at 6.5 percent; and a full-year growth of 5.9 percent. For 2020, ERU expects GDP to average 6.6 percent.
ERU said the Notice of Cash Allocation (NCA) utilization ratio of the government in the last seven months showed encouraging signs of recovery.
It said the government is already catching up with its spending program as of August 2019 after losing plenty of opportunities in the first four months of the year due to the budget impasse.
“These economic growth forecasts are largely based on the potential recovery of domestic investment, particularly that of the public side. These expectations are premised on the continuous government expansionary fiscal policy reforms and accommodative monetary policies,” ERU said.
The ERU, meanwhile, said waning global economic demand and the uncertainties of trade issues between the US and China may weigh on GDP growth forecasts.
Earlier, Socioeconomic Planning Secretary Ernesto M. Pernia told reporters GDP growth may be around 6 percent in the third quarter, the low end of the 6-7 percent full-year growth target range.
Pernia said growth will be driven by the government’s efforts to spend the 2019 budget. The economic team had blamed the budget impasse for the slowdown in GDP in the first semester.
“You have to believe, right? We have to believe in ourselves, republic of beliefs,” Pernia said.
In a recent speech, Pernia quoted former World Bank Chief Economist and Professor of Economics of Cornell University Kaushik Basu whose recent book was titled, The Republic of Beliefs.