May 9, 2019 / 4:32 AM / a year ago

Policy easing on the cards as Philippine first-quarter GDP growth disappoints

MANILA (Reuters) - The Philippine economy grew at its weakest pace in four years in the first quarter bolstering expectations the central bank will cut rates at its meeting later on Thursday to rev up growth.

FILE PHOTO: Construction of new buildings alongside older establishments is seen within the business district in Makati City, metro Manila, Philippines January 25, 2017. REUTERS/Romeo Ranoco

The economy expanded 5.6 percent in the first three months of the year, dragged by a slowdown in government spending, farm output, exports and the country’s budget deadlock. The pace was slower than the previous quarter’s 6.3 percent and also the 6.1 percent forecast in a Reuters poll.

The slowdown in one of Asia’s fastest-growing economies was expected because of the delay in the approval of the national budget, which hurt the government’s ability to execute programs and pursue infrastructure and other projects.

“As we have forewarned repeatedly, the re-enacted budget would sharply slow the pace of our economic growth,” Economic Planning Secretary Ernesto Pernia told a news conference.

On a seasonally adjusted basis, the economy grew 1.0 percent in the January-March period from the previous quarter, far slower than the upwardly revised 1.8 percent in the fourth quarter.

The peso fell to as low as 52.35 against the U.S dollar in early Thursday trade, from Wednesday’s close of 52.11, while the benchmark stock index was down nearly 2 percent after the data was released.

Market attention will now be on the Bangko Sentral ng Pilipinas’ (BSP) rate review later in the day, where it may adopt an easing bias or cut rates to support an economy also hobbled by fallout from the U.S.-China trade dispute and slowing global growth.

“This is a big disappointment”, Chidu Narayanan, economist at Standard Chartered, said of the weaker-than-expected growth in the first quarter. “We think BSP will start its rate cutting cycle with a 25 bps rate cut this afternoon.”

(Philippine economy snapshot:


Growth in government spending slowed to a near two-year low of 7.4 percent in the first quarter from 12.6 percent in the fourth quarter, the data showed. That outweighed the pick-up to 6.3 percent in domestic demand growth from 5.3 percent. For details, click on

Pernia said the economy needs to grow by an average 6.1 percent over the next three quarters to achieve the government’s downwardly revised growth target of 6-7 percent this year.

Asked if he thought monetary policy should be eased to support the economy, Pernia said he would leave it to the BSP. He noted that Governor Benjamin Diokno had said he was pro-growth when he was appointed to head the central bank.

Michael Ricafort, economist at RCBC in Manila, expects the central bank to cut key policy rates and or lower banks’ reserve requirement ratio.

The country’s exports shrank for a fourth straight month in March, data showed on Wednesday, underlining weak external demand, while farm output - accounting for about a 10th of the country’s gross domestic product - slowed in the first quarter.

Economists believe the central bank can afford to place greater emphasis on growth as inflationary risks have subsided.

Easing food and fuel prices helped cool inflation for a sixth straight month in April to 3.0 percent, matching the mid-point of the central bank’s 2-4 percent target for the year.

Last month’s dip in consumer prices reinforced views in a Reuters poll that the central bank would start reversing some of last year’s policy rate hikes which totaled 175 basis points to rein in red-hot inflation.

Eight of 12 economists in the poll predicted the central bank would cut its benchmark interest rate by 25 basis points on Thursday to 4.50 percent.

Four of the eight further said the policy rate cut would also be accompanied by a 100 basis point reduction in the reserve requirement ratio, currently at 18 percent, to ease liquidity conditions.

Additional reporting by Enrico Dela Cruz; Editing by Jacqueline Wong

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