Economists still project above 6% growth for Philippines this year

MANILA, Philippines — Economists still expect the Philippines to post a gross domestic product (GDP) growth of above six percent this year despite a slower growth of only 5.6 percent in the first quarter.

Prakash Sakpal, economist for Asia at ING Bank, said the government’s six to seven percent growth target is still achievable.

“On technical grounds, it’s possible as a more favorable base effect at work in the remainder of the year. After accounting for the first quarter dip, our full-year 2019 growth forecast still remains above six percent,” Sakpal said.

The GDP expansion in the first quarter, Sakpal said, was against consensus and ING’s estimates of six percent and 5.9 percent, respectively.

“The first quarter figure is a sharp dip from the 6.3 percent growth in the previous quarter and will go down as the slowest pace of growth in the last four years,” Sakpal said.

Weak government spending due to the delayed approval of the 2019 budget shaved off 0.3 percentage points from the GDP growth, while a bigger hit of two percentage points came from higher trade deficit

Sakpal said firmer private consumption and investments offset some of the decline but not sufficiently enough to keep GDP growth within the government’s target for the year.

Security Bank chief economist Robert Dan Roces said the decision of the Bangko Sentral ng Pilipinas (BSP) to slash interest rates by 25 basis points and the impending reduction of the reserve requirement ratio (RRR) could boost economic growth.

“Against these backdrops, we still expect full year GDP growth to be above six percent, but we now see greater upside risks to our inflation and dollar-peso forecasts. A data dependent BSP will definitely take stock of its pro-growth stance and consider an RRR cut sooner,” Roces said.

Roces added interest rate cuts should encourage borrowing in order to spend, thereby pushing for positive growth but may be inflationary in nature.

“We think that an RRR cut is more positive for economic growth as domestic liquidity and aggregate demand could be better augmented by this policy action, especially in light of the sub-six percent GDP growth rate and low money supply growth,” Roces said.

On the other hand, Fitch Solutions said the country’s GDP growth could fall below six percent this year due to the heightened trade tension between the US and China.

“We forecast the economy to grow 6.1 percent in 2019, down from 6.2 percent in 2018, but note a lack of a resolution or an escalation of trade tensions could mean growth comes in below six percent for the year,” Fitch Solutions said.

The research arm of Fitch Group also noted results of the mid-term elections on May 13 could see President Duterte gain a majority within the Senate and boost the outlook for policy formation and implementation.