GDP growth slows to 6.1 percent in 3rd quarter

By Fernando Fajardo |November 08,2018 - 08:43 PM

Fernando Fajardo

Government spending more than before, however, may also lead to much larger government deficits and to higher inflation rate.

As reported yesterday by the Philippine Statistics Authority (PSA), the country’s Gross Domestic Product (GDP) grew by 6.1 percent in the third quarter, down from 7.3 percent in the same quarter of last year and the revised 6.2 percent growth in the second quarter of this year.

On the production or supply side, Services, which accounts for 59.3 percent of the GDP, recorded the fastest growth at 6.9 percent in the third quarter.

However, this was down from 7.3 percent in the same quarter of last year though higher than the 6.8 percent growth in the second quarter of this year.

Industry, with 33.4 percent of the GDP, was next with 6.2 percent.

This was down from 6.5 percent growth in the second quarter and from the previous year’s third quarter 8.1 percent growth.

Agriculture, which accounts only for 7.3 percent of the GDP, declined by 0.4 percent.

Meanwhile, imports went up by 18.9 percent while exports grew only by 14.3 percent.

This resulted in negative net exports of about 10 percent of the GDP.

Negative net exports will push the GDP lower while positive net exports will push it higher.

On the expenditures or demand side, growth was driven by capital formation or investments, which grew at 16.7 percent, and by government final consumption expenditures with 14.3 percent.

Consumption grew only by 5.2 percent, down from 5.9 percent in the second quarter and from 5.4 percent in the previous year.

With the country’s projected population reaching 106.6 million in the third quarter of 2018, per capita GDP grew by 4.4 percent.

The 6.6 percent GDP growth in the 1st quarter, 6.2 percent in the 2nd quarter, and 6.1 percent in the 3rd quarter implies that it will take a heroic 9.1 percent GDP growth in the 4th quarter for the government to achieve its original 7 percent GDP growth target for the year.

Reaching that is not possible with inflation still high that continues to discourage consumption, the increase in interest rates that also discourages investments, and given further the uncertainties in global trade as affected by the US-China trade war.

With these, GDP growth might in fact go deep below 6 percent in the 4th quarter or stay close to it.

To boost the economy, the government may just have to spend more like what it had been doing in the first three quarters as final household consumption expenditure growth is still constrained by the Train-induced inflation.

Government spending more than before, however, may also lead to much larger government deficits and to higher inflation rate.

As for the BSP, this time, it may just have to stop raising the interest rate to fight inflation since more or less, inflation had already reached its peak last month.

To raise the interest rate further may only make new investments less profitable.

It, therefore, must be avoided to avoid slowing down GDP growth.

What is GDP?

How is it measured?

This will be my subject next week, hopefully.

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