Philippine GDP Growth Miss Adds to Calls for Bigger Rate Cut

(Bloomberg) --

The Philippine economy grew at its slowest pace in more than four years in the second quarter, bolstering expectations that the central bank will cut interest rates by at least a quarter-percentage point later Thursday.

Gross domestic product expanded 5.5% in the second quarter from a year ago, lower than the 5.9% median estimate in a Bloomberg survey of economists. That was down from 5.6% expansion in the first quarter.

"I think it’s fair to say the GDP number adds pressure for the central bank to cut interest rates,” said Edward Teather, senior economist for Asean at UBS Group Singapore. “We forecast a total of 75 basis points of easing for the rest of the year. The question is will they deliver 50 basis points now, and there’s certainly more case for that."

The benchmark PSEi index pared gains after the data and was largely unchanged on the day as of 10:46 a.m. in Manila. The peso was up as much as 0.3% against the dollar after the data release.

Briefing reporters in Manila, Economic Planning Secretary Ernesto Pernia cited the El Nino weather pattern, the U.S.-China trade war and the delayed national budget as challenges for the economy. The government may have to revisit its economic targets -- “just to be realistic about what we expect this year” Pernia said -- even as he said GDP growth could still reach 6%-6.5% for the full year.

The second-quarter growth figure could influence the central bank decision later in the day. Almost all of the 26 economists in a Bloomberg survey predict a 25-basis point cut to the benchmark rate as cooling inflation gives policy makers room to support the economy.

Chidu Narayanan, an economist at Standard Chartered Plc in Singapore, called the second-quarter print “appallingly low.” Narayanan expects a quarter-point cut from the central bank Thursday afternoon, but said that given “the big miss on Q2 GDP, combined with the recent slew of dovish surprises, we cannot rule out a bigger rate move.”

Other Details

• A four-month delay in approving the budget -- finally passed in April -- prompted the government to lower its 2019 GDP growth target to 6%-7%, from 7%-8%
• Government spending rose 6.9% in the second quarter, compared to 7.4% in the previous quarter and 11.9% a year earlier; public construction dropped 27.2%
• Household spending slowed to 5.6% growth from 6.1% a quarter earlier
• Capital formation contracted 8.5% after growing 8% in the first quarter
• Earlier this week, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said he sees room for an additional 50 basis points of interest-rate cuts this year

--With assistance from Tomoko Sato, Siegfrid Alegado, Ditas Lopez and Lilian Karunungan.

To contact the reporters on this story: Claire Jiao in Manila at cjiao5@bloomberg.net;Cecilia Yap in Manila at cyap19@bloomberg.net

To contact the editors responsible for this story: Cecilia Yap at cyap19@bloomberg.net, ;Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold, Clarissa Batino

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