PH growth to miss targets in 2019, 2020
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Thu, 17 Jan 2019 16:25:00 +0000
The Philippines will continue to outperform many of its neighbors but growth this year and the next will fall below official targets, a research consultancy said on Thursday.
In a report, London-based Capital Economics forecast gross domestic product (GDP) growth of 6.0 percent for both 2019 and 2020, slower than the 6.7 percent posted in 2017 and market expectations of around 6.5 percent for last year.
“Although this would still make it one of the fastest growing economies in the region, it is below what both the government and the consensus are expecting,” Capital Economics said.
The government has set a GDP growth goal of 7.0-8.0 percent for both years, up from 2018’s 6.5-6.9 percent.
Growth is currently running below the 6.5-6.9 goal for 2018 based on latest data, averaging 6.3 percent as of end-September following first to third quarter outturns of 6.6 percent, 6.2 percent and 6.1 percent, respectively.
Fourth quarter and full-year 2018 GDP figures are set to be released on January 24.
“On the plus side, the economy is likely to receive a boost from falling inflation,” Capital Economics said, projecting inflation to fall to 4 percent this year before decelerating further to 3.5 percent in 2020.
Headline inflation averaged 5.2 percent last year, hitting the Bangko Sentral ng Pilipinas’ (BSP) forecast but exceeding the 2.0-4.0 percent target.
Capital Economics also said that lower price pressures should give the central bank room to unwind some of the tightening ordered last year — the Monetary Board raised key interest rates five consecutive times after inflation breached the 2.0-4.0 percent target starting March.
“We have pencilled in two 25 bps (basis points) cuts this year, with the first at the bank’s May meeting … Lower rates should provide some relief to consumers and businesses,” it added.
Economic growth over the next couple of years, Capital Economics said, should also continue to be supported by an increase in government infrastructure spending.
Still, it noted that “while the Philippines desperately needs better roads, ports and so on, the surge in infrastructure spending has brought some adverse side effects.”
Substantially higher imports of capital goods and raw materials has widened the country’s trade and current account deficits, and exports going forward are expected to suffer from slowing external demand due to trade tensions and slower global growth.
As a result, the current account deficit will likely widen over the next couple of years, reaching around 4 percent of GDP in 2020.
The current account — a major component of the balance of payments — consists of transactions in goods, services, primary income and secondary income, and measures the net transfer of real resources between the domestic economy and the rest of the world.
Last year, the Philippines incurred a current account deficit equivalent to 0.8 percent of GDP.
The deficit hit $2.907 billion in the third quarter, a reversal from the $1.1-billion surplus recorded a year earlier. It brought the year-to-date shortfall to $6.471 billion, also a reversal from the $968-million surplus seen in the comparable 2017 period.
A wider current deficit “would put the peso back under pressure,” Capital Economics said.
“The currency has rebounded a little in recent months from a low in mid-October. But we think this will be temporary,” it added, projecting the currency to fall a further 11 percent against the US dollar by the end of next year.
The peso ended 2018 at P52.58 versus the greenback, down sharply from its 2017 close of P49.93:$1.
On the political front, Capital Economics noted anew that “President [Rodrigo] Duterte has shown an increased willingness to break constitutional norms, and there are signs his erratic leadership style has put off investors.”
“Improvements to the business environment have stalled under Duterte and new approvals of FDI (foreign direct investments) in 2017 and 2018 were less than half the average under his predecessor’s premiership,” it said.
Senate elections in May could cause further instability, meanwhile, while weak private investment could drag on the economy over the coming years.
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