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Philippine economy to grow below-target over the next 2 years — report

Ian Nicolas Cigaral - Philstar.com
Philippine economy to grow below-target over the next 2 years â report
This Dec. 20, 2018 photo shows workers cleaning a panel of the building in UN Avenue, Manila. The Philippine economy will likely grow below what both the government and the market are expecting, a London-based think tank said, although the country will stay as one of the fastest growing economies in emerging Asia.
The STAR / Krizjohn Rosales

MANILA, Philippines — The Philippine economy will likely grow below what both the government and the market are expecting in 2019 and 2020, a London-based think tank said, although the country is poised to stay as one of the fastest growing economies in Emerging Asia.

In a report sent to reporters Thursday, Capital Economics said it expects the domestic economy to expand by 6 percent this year and next coming from an estimated 6.2 percent gross domestic product print in 2018.

If realized, Capital Economics’ forecasts would fall below the government’s downwardly revised target of 6.5-6.9 percent for 2018 and 7-8 percent goal for 2019 and 2020.

“On the plus side, the economy is likely to receive a boost from falling inflation,” the think tank said, adding that soaring prices are projected to fall back to within the central bank’s 2-4 percent target range by the middle of the year.

“Lower price pressures should give the central bank room to unwind some of last year’s tightening... Lower rates should provide some relief to consumers and businesses,” it also said.

Higher and new excise taxes on certain commodities as well as rising fuel prices pushed up inflation last year, and it spiked to a near-decade high in September and October before it started to ease. The Bangko Sentral ng Pilipinas has lifted its policy rate by a cumulative 175 basis points since May 2018 to fight inflation.

Red-hot inflation and surging borrowing costs have sapped consumer spending, which has traditionally been the driving force behind growth in the Philippines.

‘Some adverse side effects’

Capital Economics said growth over the next couple of years should also be supported by an increase in government infrastructure spending, but it flagged “some adverse side effects” of the construction boom.

Capital Economics also expects trade tensions and slower global growth to weigh on demand for Philippine exports, which it said could further widen the nation’s current account gap over the next two years to reach around 4 percent of GDP in 2020.

“While the Philippines desperately needs better roads, ports and so on, the surge infrastructure spending has brought some adverse side effects. The trade balance and current account have both widened sharply in recent years due to a surge in imports of capital goods and raw materials,” Capital Economics said.

“This would put the peso back under pressure... Our forecast is for the peso to fall a further 11.0 percent against the US dollar by the end of next year,” it added.

The peso capped off 2018 at P52.58 versus the dollar, weaker than its 2017 close of P49.93. Last October 4, the local unit ended at P54.325 against the dollar, which was the peso’s weakest in almost 13 years.

The peso has since recovered from being the worst-performing currency in the region. As of 3:19 p.m. Thursday, the local currency was trading at P52.46 against the greenback, weaker than its previous finish.

‘Instability’

In the same report, the London-based economic research company said President Rodrigo Duterte’s “erratic leadership style” has put off investors.

It also said the elections in May could cause “further instability.”

“Improvements to the business environment have stalled under Duterte, and new approvals of [foreign direct investments] in 2017 and 2018 were less than half the average under his predecessor’s premiership,” Capital Economics said.

“We expect weak private investment to be a drag on the economy over the coming years,” it added.

PHILIPPINE ECONOMY
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