Gov’t spending likely picked up in August — ING Bank

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Workers are seen on scaffolding at a construction site for an expressway in Manila on March 8, 2017. -- AFP

By Melissa Luz T. Lopez,
Senior Reporter

GOVERNMENT spending likely surged in August, picking up the pace from the previous month, an analyst at ING Bank N.V. Manila said, noting that accelerated spending will help bring full-year economic growth to within the target range.

“Acceleration in government spending is likely to resume after a somewhat disappointing July performance with a modest spending growth of only 11%, a significant deceleration from the May-July average growth of almost 22%. We expect August spending to have accelerated from July’s pace,” ING Bank senior economist Jose Mario I. Cuyegkeng said in a market report sent yesterday.

Gross domestic product (GDP) expanded by 6.5% during the second quarter, picking up from the 6.4% pace logged the previous quarter although growth was slower than the 7.1% rise a year earlier, which enjoyed a one-time boost from election spending.

Government spending picked up by 11% in July while revenue rose by 14%, according to Treasury data.

Economic managers have said that growth will likely accelerate between July and September as they expect more big-ticket infrastructure projects rolled out one year into the Duterte administration, forming part of the P8.44-trillion spending plan to be implemented until 2022.

ING Bank said the increased spending will spur greater economic activity during the second semester, which will pull the full-year GDP to within the government’s 6.5-7.5% target band.

“The fiscal stimulus should help support a growth forecast of around 6.6% this year despite some slowdown in manufacturing growth in 3Q (third quarter),” Mr. Cuyegkeng said.

Growth has averaged 6.45% between January-June, just below the official target set by President Rodrigo R. Duterte’s economic team. This assumes that infrastructure spending will hit P847.22 billion, accounting for 5.3% of GDP.

On the other hand, ING does not see inflation as a concern for the Bangko Sentral ng Pilipinas, saying that the full-year outcome is expected to remain within the two to 4% range even if price increases pick up in the months ahead.

“A 3.2% 2017 average inflation forecast would tolerate a 3.4% average inflation turnout for September to December,” the bank economist said, pointing out that inflation has so far averaged 3.1%.

This also leaves room for the central bank to keep policy rates steady ahead of relatively high inflation expected next year as additional duties under the proposed tax reform program take effect by January.