MANILA, Philippines — Economists are now expecting the Philippines to book slower economic growth this year after a lower-than-expected gross domestic product (GDP) expansion in the first quarter amid lower spending brought about by the delayed passage of the 2019 budget.
Fitch Solutions Macro Research slashed its GDP growth forecast for the Philippines to 5.9 percent instead of 6.1 percent this year before rebounding modestly to 6.3 percent in 2020.
The research arm of the Fitch Group said trade tensions and a general softening of external demand would continue to drag headline growth.
However, it said government consumption would pick up and monetary policy would once again become more accommodative to support growth over the coming quarters.
“The Philippine economy is set for a slower pace of growth over the coming quarters, as the external backdrop drags on headline growth. In line with our view of downside risks to growth, the economy slowed sharply to 5.6 percent year-on-year in the first quarter, down from 6.3 percent in the fourth quarter of 2018,” it said.
Fitch Solutions said net exports, weaker investment and government spending weighed on the headline growth figure, as trade tensions and delays passing the 2019 budget weakened momentum.
“The budget issue was resolved in April and fiscal stimulus should pick up in late 2019 and heading into 2020. However, the weak external backdrop will prove a drag on headline growth, owing to ongoing US-China trade tensions and slowing global growth,” Fitch Solutions said.
The research arm revised upward its forecasts for domestic consumption but lowered the net export component to -1.7 percentage points from -0.7 percentage point.
“We believe that economic growth will pick up modestly from the first quarter and into 2020, supported by government consumption and still-strong household demand. The passing of the 2019 budget in April will see government consumption rebound through 2019,” it said.
Despite the still-positive domestic consumption outlook, slowing global growth and persistent Sino-American trade tensions would continue to weigh on growth over the coming quarters.
“The escalation in trade tensions between the US and China in May will deepen the external drag on the Philippine economy. The US and China accounted for 15.6 percent and 12.9 percent, respectively, of exported goods from the Philippines in 2018,” it said.
Lindsey Ice, economist at Barcelona-based think tank FocusEconomics, said its GDP growth forecast for the Philippines was lowered to 6.2 percent instead of 6.3 percent for this year and 6.3 percent for 2020.
Ice said the Philippine economy slowed significantly in the first quarter amid prolonged budget impasse resulting in a re-enacted 2018 budget and delayed infrastructure projects.
Growth is expected to recover in the second quarter, likely on a rebound in government spending and sustained private consumption, Ice said.
The economist said the partial unwinding of last year’s monetary tightening by the Bangko Sentral ng Pilipinas should also eventually feed through to lower borrowing costs.
However, Ice said a more challenging external backdrop owing to the prolonged US-China trade dispute, a weaker Chinese economy and sluggish technology demand would likely continue to hamper demand for Philippine exports.