Q1 GDP in the Philippines came in well below expectations at 5.2%, slowing sharply from a downwardly revised Q4 print of 6.6%, and below the consensus expectations of 6.6%. On a seasonally adjusted basis, GDP expanded just 0.3% q/q – the weakest since Q1 09, when the economy contracted. The weakness was driven by slower growth in government spending and a negative contribution from net exports, amid weak external demand as well as disruption at Manila Port during the first half of the quarter. It is also possible that the three extra public holidays linked to the Pope’s visit in January weighed on output.Overall, the print makes the government’s 7-8% growth target decidedly optimistic, in our view. Barclays expects 2015 growth rate at 6.5%, with downside risks should not be seen a significant rebound in Q2. Private consumption remained solid in Q1, and government spending is likely to pick up strongly in Q2, as both the government and central bank have signalled. Analysts expect the BSP to maintain its neutral to moderately hawkish rhetoric in the coming months, particularly given the looming risk of El Niño for food prices, and continue to forecast a 25bp hike in Q4, following our US economists’ projected September liftoff for the Fed.
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