AMRO retains 6.4% growth outlook for Philippines this year

MANILA, Philippines — Singapore-based ASEAN+3 Macroeconomic Research Office (AMRO) has retained its 6.4 percent growth projection for the Philippines this year on the back of buoyant domestic demand and strong credit growth amid high interest rates.

Growth of the domestic economy is seen accelerating to 6.6 percent in 2020.

“The economy expanded by 6.2 percent in 2018, the lowest in the last three years. Economic growth is expected to gradually recover on the back of buoyant domestic demand and will likely expand by 6.4 percent in 2019, albeit with the balance of risks to growth tilted to the downside,” said AMRO in its Regional Economic Outlook 2019 released yesterday.

The regional think tank said despite the tightening of monetary conditions – in response to inflationary pressures last year – credit continued to expand.

“Tightening monetary policy operations amid intensified short-term capital outflows have led all market rates to rise markedly. Supported by strong demand and growing competition, banks have continued to expand credit strongly,” said AMRO.

While credit growth is expected to remain strong, it is also expected to slow down eventually as borrowing costs rise.

“Credit growth is anticipated to remain elevated, but as real borrowing cost starts to rise, it is likely to moderate,” AMRO said.

Economic growth in the country slowed down in 2018 as high inflation eroded household purchasing power and sluggish external demand weakened exports.

Active government spending, however, supported the economy during the period.

Inflation stayed above the target level last year because of shocks on the supply side of the economy, particularly food.

AMRO noted that a sharp increase in food prices, soaring oil prices, excise tax hikes and a weaker peso all contributed to the rise in consumer prices last year.

Because of the implementation of various non-monetary measures including the passage of the rice tariffication law and lower oil prices in 2019, average inflation is expected to settle within three percent in 2019 throughout 2020, well within the government target range of two to four percent this year.

AMRO said risks to the Philippine economy are “mostly short-term ones.”

Externally, these are escalation global trade tensions that may further weaken exports.

Domestically, elevated inflation and pockets of financial vulnerabilities are the main concerns.

“Global trade tensions and a slowdown of the global economy may exert significant drag on Philippine economic activity. As global financial conditions have eased, the pressure from short-term capital outflows has dissipated,” said the report.

Even as inflation has cooled steadily, uncertainty from global oil prices may delay its return to the mid-point of the target range.