Govt spending growth ‘unsustainable’ – analyst
INCREASED government spending may have boosted economic growth in the third quarter but is unlikely to be sustained, an analyst warned.
Philippine gross domestic product (GDP) growth grew by a higher-than-expected 5.9 percent in the third quarter, accelerating from 4.3 percent three months earlier.
Government spending — blamed for the April-June GDP slowdown from 6.4 percent during the first three months of 2023 — grew by 6.7 percent in a turnaround from the second quarter’s 7.1-percent drop.
Efforts to contain the budget deficit and lower the debt burden, however, mean the government cannot afford to sustain spending, Pantheon Macroeconomics economist Miguel Chanco said.
“It looks like the government will already struggle to keep to its outlined path for fiscal consolidation, which sees the deficit narrowing to around 4.0 percent by 2024,” he noted.
Chanco raised his economic growth forecasts for this year and the next but these remained below the government’s targets.
He now expects GDP growth of 5.4 percent this year, up from 4.5 percent previously, and a slowdown to 4.8 percent in 2024. Both outlooks fall below the 6.0- to 7.0-percent target for 2023 and the 6.5 to 8.0 percent for the medium term.
HSBC Global Research economist Aris Dacanay also noted that growth was likely to be subdued for the rest of the year up to well into 2024, particularly with household spending continuing to slow.
Excluding the impact of the Covid-19 pandemic, he said that household consumption had grown at its slowest rate since 2011.
Household spending growth eased to 5.0 percent in the third quarter from 5.5 percent three months earlier.
Dacanay said the slowdown was likely to continue through the rest of 2023 due to high inflation having reduced the buying power of households.
“With government spending already ‘caught-up,’ we continue to expect growth to be subdued for the rest of 2023 and even up to the second half of 2024 as the drags in both private consumption and investment become more substantial,” he said.
Despite the forecasts of subdued growth, Finance Secretary Benjamin Diokno said the full-year result would still be “close to the low end” of the 6.0- to 7.0-percent growth target.
“This strong [third quarter] performance is buoyed by robust domestic demand despite high inflation, improved government spending and a better global growth outlook,” he said.
Year to date, Philippine GDP growth stood at 5.5 percent, exceeding that of China (5.2 percent), Indonesia (5.1 percent), Vietnam (4.2 percent), Malaysia (3.9 percent) and Singapore (0.5 percent).
“We are confident that the country will post a full-year economic growth that is close to the low-end of the DBCC’s (Development Budget Coordination Committee) growth assumptions of 6.0 to 7.0 percent for 2023 as inflation eases, labor market conditions remain strong and consumer spending increases, particularly during the holiday season,” Diokno said.
On Thursday, Socioeconomic Planning Secretary Arsenio Balisacan said the Philippine economy would have to grow by at least 7.2 percent in the fourth quarter to achieve the low end of the 2023 goal.
Diokno said that fourth-quarter growth “will be supported by the continued acceleration of government spending and the rebound in manufacturing activities given the improved global economic outlook for the year.
“As inflation eases and continues to decelerate for the rest of the year, the government expects this to help domestic demand propel the economy closer to the low end of the growth target,” he added.