Fitch unit: PH economy ‘unlikely to gather steam’
Credit to Author: ANNA LEAH E. GONZALES| Date: Fri, 25 Jan 2019 16:25:05 +0000
The Philippine economy is “unlikely to gather steam” in 2019, a Fitch unit said, with growth expected to ease for a second straight year.
“[W]e maintain our forecast for real GDP (gross domestic product) growth in the Philippines to slow slightly to 6.1 percent in 2019, from 6.2 percent in 2018 and 6.7 percent in 2017,” Fitch Solutions said in a January 24 report issued following the government’s release of 2018 growth data.
“We expect a further tightening of monetary conditions, the likelihood of a reescalation of global trade tensions, and a deteriorating business environment to weigh on the Philippines’s economic growth momentum,” it added.
“The strong public investment drive will be insufficient to offset growing external headwinds and weak private investment.”
High prices weighed on the economy last year, with the 6.2-percent result missing the government’s downwardly-revised 6.5-6.9-percent target.
Fitch Solution’s 6.1-percent projection for 2019 also falls below the official 7.0-8.0-percent goal.
The 2018 slowdown, it noted, was driven by declines in private consumption and exports — a situation likely to be repeated this year.
“We expect overall growth to continue to be negatively impacted by headwinds to private consumption as domestic monetary conditions tighten further over the coming quarters, alongside global rising interest rates,” it said, also pointing to a Bangko Sentral ng Pilipinas survey that found reduced consumer confidence for the first quarter and the full year.
The US-China trade war, meanwhile, is expected to flare up anew and affect shipments of Philippine-made goods to its largest neighbor.
“Although trade tensions between the US and China have eased following a 90-day truce which started on December 1, 2018, we believe that there will not be a lasting resolution to the trade dispute after the end of the truce on March 1,” Fitch Solutions said.
“A re-escalation of trade tensions will not only disrupt global supply chains and investor confidence, but also weigh directly on China’s economic growth and hence export
demand from the Philippines,” it added.
State spending, which helped sustain economic growth last year, will likely prove insufficient in the wake of a fourth-quarter 2018 slowdown and limited resources.
“[W]e highlight that the government is constrained by its limited ability to raise revenues and we believe that the heavy government spending will be unsustainable and insufficient to support economic growth sustainably amid rising headwinds,” it said.
The fourth quarter spending slowdown, to 5.5 percent from 18 percent a year earlier, was the lowest in over three years.
Highlighting the importance of increased public infrastructure spending as a means sustaining growth and boosting the country’s competitiveness, Fitch Solutions said that in the case of the Philupines, “returns from large-scale public-led infrastructure projects are typically not maximized, due to hasty appraisal and a sub-optimal public procurement system.”
“This could end up increasing the country’s debt burden without a commensurating increase in productivity, instead weighing on future growth potential,” it added.
A deteriorating business environment will also not help and is expected to weigh on private investments over the year, Fitch Solutions said, pointing to declines in the Philippines’ ease of doing business and corruption perception rankings.
Still, the Fitch unit said that near-term risks to its outlook remained “evenly balanced”.
On the upside, the government could opt to abandon deficit cap of 3-percent of GDP and spend even more aggressively to achieve its economic goals, albeit at the expense of longer-term macroeconomic stability.
“The [country’s] relatively large foreign reserves (more than eight months of import cover) and low public debt load (42.1% of GDP) suggest that there is room for the government to borrow and spend aggressively, which would provide a short-term boost to growth,” Fitch Solutions noted.
External and geopolitical issues, meanwhile, were tagged as pertinent downside risks.
“A significant deterioration in US-China trade tensions and a faster-than-expected rate hiking cycle in the US could trigger a flight to safety, weighing on investment further,” Fitch Solutions said.
And while the Duterte administration has chosen to pursue closer ties with China, it noted that maritime disputes in the South China Sea remain unresolved.
“A flare-up of tensions between both sides would damage economic cooperation and could see China pull out of infrastructure investments in the Philippines,” it said.
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