‘Q1 GDP opens room for rate cut’
Credit to Author: ANNA LEAH E. GONZALES| Date: Fri, 10 May 2019 16:23:12 +0000
A unit of the Fitch Group said on Friday the lower-than-expected gross domestic product (GDP) the government posted in the first three months of 2019 offered some space for a rate cut.
In a report, Fitch Solutions said “the slowdown in growth [not only reflected] the external headwinds faced by the Philippine economy, but also the limited domestic fiscal support and the impact of tighter monetary policy in the” first quarter.
The report came a day after the government announced that the country’s economic growth in January to March slowed to a four-year low of 5.6 percent, missing forecasts. It was blamed on the delayed passage of the 2019 national budget, which weighed on government spending.
It also came after the Bangko Sentral ng Pilipinas’ policymaking Monetary Board cut interest rates by 25 basis points (bps) hours after the release of the GDP data — the
first time it did so after raising rates five consecutive times, or a total of 175 bps, to arrest rising inflation last year.
“Ongoing China-US trade tensions has contributed to weaker Chinese import demand and business confidence across Asia. With trade-related risks still a threat, the
Philippines government and the BSP will look to loosen policy further if growth shows limited signs of recovering,” Fitch Solutions said.
“We expect the economy to benefit from stronger government consumption through the rest of 2019, with the 2019 budget agreed upon. The BSP may also seek to ease reserve requirements or its policy rate even further, given that inflationary pressures have now receded to within its target band,” it added.
The Philippine Statistics Authority (PSA) reported that inflation further eased to 3.0 percent in April from 3.3 percent in March.
Fitch Solutions earlier said it forecast economic growth of 6.1 percent for this year, down from last year’s 6.2 percent.
Trade tensions continue to pose risk to the Philippine economy, according to the Fitch unit.
“We forecast the economy to grow 6.1 percent in 2019, down from 6.2 percent in 2018, but note a lack of a resolution or an escalation of trade tensions could mean [that] growth [would come] below 6.0 percent for the year,” Fitch Solutions said.
“Furthermore, midterm elections will be held on May 13, and this could see President Rodrigo Duterte gain a majority within the Senate and, thus, boost the outlook for policy formation and implementation,” it added.
“However, we believe that a win for Duterte [would] likely garner a mixed reaction from markets, on the one hand meaning lower political risk and on the other, lower checks and balances for Duterte.”
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