Growth could remain below 6% in Q2 – analysts

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Metro Manila (CNN Philippines, August 2) — Economic growth appears to have picked up in the second quarter but likely remained below 6 percent as the government was not able to spend targetted, according to a CNN Philippines poll.

The economy likely expanded by 5.9 percent in the April-June quarter, based on the average of 10 economists' estimates. This would be faster than the four-year low of 5.6 percent in the first quarter, but remains pale compared to the 6.2 percent growth logged during the second quarter of 2018.

This also means that the government's 6-7 percent growth target remains out of reach so far.

READ: Pernia expects 6% economic growth in Q2

"We are looking at 5.85 percent and driven by two things: a continued strength in household consumption, which we already saw trending up in 1Q; and weak fiscal spending due to budget delay and election ban," said Patrick Ella, economist at Sun Life Financial.

Underspending persisted all the way until June, with the ₱1.59 trillion budget releases settling ₱125.8 billion short of target.

READ: Infrastructure spending misses first-half target by 21%

Ruben Carlo Asuncion, chief economist at the Union Bank of the Philippines, said there was a "slight improvement" in public spending with higher salaries paid to government and military personnel, and the start of new projects after the four-month delay in approving the national budget.

"Agriculture is still expected to have minimal impact on the supply-side, while both industry and services are expected to improve in the second quarter," Asuncion added, while noting that cooling inflation helped lift local prospects.

July inflation

All analysts tapped in the poll believe that price increases softened further last month, with all projections falling below June's 2.7 percent reading.

The median estimate stood at 2.3 percent, well within the 2-2.8 percent range given by the Bangko Sentral ng Pilipinas (BSP) earlier this week. This would also be a lot softer than the 5.7 percent pace in July 2018.

Michael Ricafort, economist at the Rizal Commercial Banking Corporation, said prices of food have already eased. He said the onset of the rainy season helped downplay the impact of the mild El Niño weather phenomenon that may have dried up crops.

The central bank has attributed the sustained inflation slowdown to cheaper rice and lower electricity rates, together with a stronger peso-dollar rate.

Rate cut set

Easing inflation and lackluster economic growth set the stage for another rate cut from the BSP, with all analysts agreeing that monetary officials will be trimming interest rates by 25 basis points (bp) next week.

"With inflation within target and falling, we expect the central bank to cut policy rates at the August 8 meeting with the inflation path safeguarded in 2019 and 2020 all the while seeing growth momentum underperform its potential and fall below the 6-7 percent growth target for the year," said ING Bank senior economist Nicholas Mapa.

The rates set by the BSP are used as benchmarks for bank loans and credit cards. Lower interest rates are viewed as a stimulus to the economy, as cheaper borrowing rates are expected to spur economic activity.

The looming rate cut also comes after a similar move done by the United States Federal Reserve, where policy makers reduced rates by 25 bp for the first time since 2008.

In an interview with CNN Philippines, BSP Governor Benjamin Diokno said last week that it was only logical to unwind the series of interest rate hikes in 2018, which were meant to temper surging prices. Diokno said market watchers can expect rate adjustments "in the months to come."

July inflation data will be out on August 6, followed by the second-quarter growth figure two days later.