Asian Development Bank trims Philippine growth forecast to 6.4%

MANILA, Philippines — The Asian Development Bank (ADB) has downgraded its growth forecast for the Philippine economy this year to 6.4 percent from its earlier 6.7 percent estimate due to the delay in approval of the national budget and as well as the expected slowdown in the global economy.

In its latest Asian Development Outlook (ADO) released yesterday, the ADB said the Philippine gross domestic product (GDP) is expected to grow at 6.4 percent in 2019 and 2020, up from 6.2 percent in 2018.

“I think the main factor would be the faster than expected slowdown in the global economy,” ADB country director for the Philippines Kelly Bird said.

ADB said it expects growth in developing Asia to moderate this year and next due to slowing global demand and persistent trade tensions.

Based on the ADO, the region’s growth is expected soften to 5.7 percent in 2019 and 5.6 percent in 2020, lower than the 5.9 percent growth in 2018.

“Growth overall remains solid with domestic consumption strong or expanding in most economies around the region. This is softening the impact of slowing exports,” ADB chief economist Yasuyuki Sawada said.

The ADB cited trade conflict between the US and China as still the primary risk to the region’s economic outlook, with protracted negotiations propelling further global trade uncertainty.

It added that other risks are a potentially rapid slowdown in advanced economies and China, as well as financial volatility.

Compared to its Southeast Asian neighbors, the Philippines is the only country with a positive growth forecast for this year.

Bird attributed this optimism to the country’s high public infrastructure spending and positive consumer sentiment.

“The Philippines has a major infrastructure spending program that’s keeping economic growth well above the other neighboring countries,” Bird said.

He added that the Philippines is also the least vulnerable to shock in exports as other countries are more export extensive.

“Also, the Philippines has the advantage of sustained growth in remittances and we expect that to continue to grow three to four percent. BPO sector also continues to expand, that’s a very large source of growth which the neighboring countries may not have,” Bird added.

Meanwhile, Bird cited the delay in the approval of the country’s national budget for 2019 as well as the El Niño dry spell as other potential downside risks to the country’s economic growth.

“The delay in the budget has slowed expenditure but the government will have the opportunity to catch up so once this is approved, we expect a catch up,” Bird said.

The World Bank Group has likewise lowered its growth forecast to 6.4 percent from the previous 6.5 percent estimate. It, however, said it expects a recovery in the second half of the year, assuming that the budget gets approved very soon.

“The rollout of priority public investments in infrastructure, such as bridges, expressways, ports, and railways nationwide will ensure that prospects for private investment remain bright, given better access to markets and job opportunities,” ADB said.

It added that momentum in private construction is expected to be sustained by continued strong demand for office and retail space and housing.

In addition, ADB said services and manufacturing sectors will also be the main growth drivers in the near term.

“Strong retail trade and expansion in business process outsourcing will continue to spur growth in services,” it added.

Moreover, the positive outlook for the Philippine economy is also driven by the expected easing in inflation to 3.8 percent in 2019 and 3.5 percent in 2020, against 5.2 percent in 2018, as global oil prices moderate, food supply improves with a recent law replacing quantitative restrictions on rice imports with tariffs, and last year’s monetary tightening continues to be effective.

Despite the optimistic outlook for the Philippine economy, Bird emphasized that there still remains policy challenges that the country needs to pursue to achieve further growth particularly agricultural reforms to lift productivity and increase farm incomes.

He added that the country should also promote promising sources of off-farm rural growth such as tourism.