Philippines GDP Growth to Beat Market Consensus as Fiscal Deficit Hits Record High in September, Nomura Says

Press Release
The Philippines’ economic growth will beat market consensus this year as a surge in government spending which helped widen the fiscal deficit in September to an all-time high is underpinning the country’s “front-loaded” policy of monetary easing, according to a research note from Nomura.The government reported a fiscal deficit of 178.6 billion pesos ($3.49 billion) in September, up from an average shortfall of 29.2 billion pesos since May, Euben Paracuelles, a research analyst on Nomura’s Asia economics team, said in the report. Nomura had penciled in a gap of 119.1 billion pesos for the month.

Paracuelles said September figures represented a sequential widening in fiscal deficit to 2.7% of gross domestic product from 2.2% in the previous month. It suggested a fiscal drag to growth in the first half was “now reversing,” as the government executed its catch-up spending plans after a delay in its budget earlier this year had adversely affected growth in the first six months.

Nomura expects a sequential pick up in economic growth to 5.9% in the third quarter from 5.5% in the previous three months before increasing further to 6.9% in the fourth quarter, bringing the full-year increase in gross domestic product to 6.0%, versus a market consensus of 5.7%.

Paracuelles said overall spending growth in September was 39% as capital expenditure increased substantially.

Furthermore, an 18.4% year-over-year improvement in “non-interest” spending implies a sharp improvement in public sector spending, which was a “key drag” in the disappointing growth in the second quarter.

“The government has a strong incentive to continue to close any remaining underspending gap relative to program spending to meet its 2019 growth target, which has already been toned down to the ‘lower-end’ of the 6%-7% range this year,” Paracuelles said in the report. “We continue to expect fiscal spending to rise further.”

According to Nomura, interest rate cuts in the Philippines are “done in this cycle” and further reductions in reserve requirement ratio, which influence lending by commercial banks, are “unlikely” this year because the country’s central bank has delivered “significant and frontloaded monetary easing” since May.

Apart from 75 basis points in policy rate cuts, the Central Bank of the Philippines has lowered reserve requirement ratios by 300 basis points.

This post was originally published on Health Opinion

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