1Q17 GDP at 6.4%

PHILIPPINES - In Brief 18 May 2017 by Romeo Bernardo
The headline GDP growth rate itself was unsurprising as far as we are concerned. We already noted in our just released Quarterly Report (“Settling In”) how early indicators pointed to a slower growth rate vs. 1Q16.Markets, on the other hand, were disappointed having expected a number closer to 7%; hence the almost 1% decline in stock prices today. We find more interesting the sources of demand-side growth where both consumption and investments slowed down markedly and where the drag from net exports shrank due to the strong recovery in goods exports. What we are taking away from the pattern of growth are: 1. The 5.7% growth in household spending, down from the uncommonly high 7% growth clip last year,[1] will likely be the norm going forward due to, among others, higher inflation.This rate of growth is lower than our below-consensus forecast for the year (i.e., 6.2% vs. the consensus forecast of 6.5%). 2. The deceleration in fixed investments is quite significant, from 28% in 1Q16 to just 12% in 1Q17.The two main causes are (a) the slowdown in investments in durable equipment which is reasonable after the vigorous growth in transport equipment and specialized machinery last year, and (b) the flat growth in public construction (close to 40% growth in 1Q16 vs. 2% in 1Q17).We are still hopeful that state spending on infrastructure will catch up in the quarters ahead under “Dutertenomics” but are mindful that if it does not happen soon, it will affect investor sentiments negatively.Both are downside risks to our forecast. 3. Net exports continued to widen but at a much slower pace as real goods exports grew by 22% in 1Q17 vs. less than 9% in 1Q16. If export growth continue...

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