Fitch lowers growth forecast for PH to 5.9%
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Wed, 22 May 2019 16:23:15 +0000
Sun Life maintains economic growth outlook at 6.4%
FITCH Solutions has trimmed its 2019 Philippine economic growth forecast to 5.9 percent, citing the lower-than-expected gross domestic product (GDP) expansion in the first three months of the year, trade tensions and soft external demand as reasons behind the adjustment.
The current figure, revised from 6.1 percent previously, is lower than last year’s actual growth of 6.2 percent and falls near the lower end of the government’s downwardly revised 6.0-7.0 percent target.
“While we expect a pickup in real GDP growth from first quarter onward, we at Fitch Solutions have lowered our real GDP growth forecast [and expect] a more gradual recovery from the first quarter 2019 dip,” the Fitch Ratings unit said in a report released on Wednesday.
Philippine economic growth slowed to 5.6 percent for January to March, which was mainly blamed on reduced government spending because of the delay in the approval of this year’s budget, which came in mid-April.
Fitch Solutions said that, while it was upbeat on domestic consumption, it revised downward the net export component of the GDP from -0.7 to -1.7 percentage point.
“[T]his was a key factor as why we expect growth to fall below 6 percent in 2019,” it added.
Fitch Solutions also said slowing global growth and persistent trade tensions between Washington and Beijing would continue to weigh on growth in the coming quarters, noting that the US and China accounted for 15.6 percent and 12.9 percent, respectively, of exported goods from the Philippines in 2018.
“The escalation in trade tensions between the US and China in May will deepen the external drag on the Philippine economy,” it warned.
These tensions, the Fitch unit said, has had a ripple effect across Asia, weakening demand across the supply chain and dampening business confidence in first half of the year.
“A further escalation of tensions or prolonged period of the tariffs introduced in May could likely lead us [to] revise down our growth forecast of 6.3 percent in 2020,” it added.
In a separate report, Fitch Solutions said the economic and global market backdrop provided some room for further monetary policy easing as early as September, which “is unlikely to pose significant inflationary risks.”
“[W]e at Fitch Solutions are revising our forecast for the BSP (Bangko Sentral ng Pilipinas) to cut its policy interest rate by a further 25 bps (basis points) to 4.25 percent by end-2019,” it said.
The central bank’s Monetary Board decided to trim its key interest rates by 25 bps during its May 9 meeting on expectations that inflation would remain manageable.
Fitch Solutions said “the BSP could also move ahead with other easing measures, such as lowering the reserve requirement ratio for the banking sector to support credit growth.”
Outlook still positive
In contrast to Fitch Solutions’ outlook, Sun Life Financial Philippines on Wednesday maintained its Philippine growth forecast, taking into account the impact of the lower GDP expansion in January to March and the expected strong consumption amid the slower inflation rate.
“Despite the weak first-quarter 2019 GDP, we still are seeing 2019 growth at 6.4 percent,” Sun Life Chief Investments Officer Michael Enriquez said in a briefing in Makati City.
The forecast is higher than last year’s result and within the government’s target for the year.
Enriquez stressed that Sun Life remained positive on the Philippine economy.
“I think there will be a lot of catch-up, especially because election spending will start to materialize in the second quarter,” he said. “We also see further expansion as the government will continue their infrastructure push toward the third and fourth quarters.”
“So [we’ll] probably expect GDP accelerating toward the latter two quarters,” the Sun Life official added.
Enriquez also said decelerating inflation rate would encourage strong household consumption this year, which would result in increased economic activity.
For 2019, he forecast the country’s inflation rate to average 3.5 percent before easing further to about 2 percent to 2.8 percent next year.
Last year, the rate in the increase in the prices of goods and services in a given period averaged 5.2 percent in 2018 — the highest in 10 years or since the 8.2-percent full-year inflation recorded in 2008.
“This supports our view that 2019 GDP will see a strong rebound in consumption, not only due to election-year impact, but [also because] inflation is no longer pulling down household spending,” Enriquez said.
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