‘Philippine economy unlikely to rebound in 2019’
MANILA, Philippines — The Philippine economy is unlikely to gather steam and achieve its growth target of 7-8 percent in 2019 owing to headwinds such as tighter monetary conditions, weak business sentiment and burgeoning US-China trade war, analysts said.
Gross domestic product — the value of all finished goods and services produced in the country — expanded 6.1 percent in the fourth quarter against the downwardly revised 6 percent in the preceding three months, the government reported Thursday.
For the entire 2018, GDP growth stood at 6.2 percent, below the state’s 6.5-6.9 percent goal for the year and the weakest in three years. Despite that, the Philippines is still one of the fastest-growing economies in Asia after India, Vietnam and China.
Fitch Solutions maintained its forecast for real GDP growth in the Philippines to slow to 6.1 percent in 2019, saying a strong public investment drive will be insufficient to offset growing external headwinds and weak private investment.
“We reiterate our view that the Philippine economy will struggle to reverse its weakening growth momentum over the coming quarters owing to tighter monetary conditions, the potential for a re-escalation of global trade tensions, as well as a deteriorating business environment,” Fitch Solutions said.
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The Philippines experienced a rapid increase in consumer price growth last year amid food supply bottlenecks, higher excise taxes on certain goods and a surge in the cost of oil imports.
In a bid to fight capital outflow and keep inflation in check, the Bangko Sentral ng Pilipinas has lifted its policy rate by a cumulative 175 basis points last year.
But red-hot inflation and surging borrowing costs have sapped consumer spending, which has traditionally been the driving force behind growth in the Philippines. Higher bank lending rates have also jacked up funding costs for corporates, dampening business confidence and threatening private investment growth.
'Sluggish investment prospects'
Socioeconomic Planning Secretary Ernesto Pernia said this year’s growth target was a “serious aspiration, and we are serious on reaching that.”
Broken down, consumer spending inched up last quarter, thanks to easing price pressures and a pick-up in remittances toward year-end. State spending was sluggish but remained strong at 11.9 percent while investments grew at its weakest pace since fourth quarter of 2014.
According to Pernia, the government expects household consumption to recover as soaring prices subside, adding that policymakers remain vigilant of inflation risks.
“We expect private consumption to gain more traction in 2019, as inflation eases, remittances recover, and election-related spending boosts growth,” said HSBC Global Research economist Noelan Arbis, who expects the central bank to cut reserve requirements this year to meet growing demand for liquidity from the system.
“Moreover, the net trade deficit, which has been the primary drag to growth in recent quarters, came in lower in 4Q. But this also manifested in lower government consumption and fixed investment, which have been two of the main drivers of growth in recent quarters,” Arbis added
“Indeed, government consumption and fixed investment are the same areas of risks that we see for 2019... We believe growth will slow further this year.”
Despite his optimism, Pernia flagged headwinds that may dampen the domestic economy, including the US-China trade war that stifles investment and disrupt global value chains as well as tighter financing conditions in emerging markets.
“The outlook for 2019 is dampened by sluggish investment prospects,” Oxford Economics said.
“But an ongoing recovery in consumption – as inflation continues to decline towards BSP’s target range – and strong government spending should still keep growth just above the 6 percent mark,” it added. — Ian Nicolas Cigaral
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