Warning bells

Going into the last five months of 2019, several warning bells tell us that chances for the economy hitting its targeted growth of between six to seven percent this year is getting slimmer.

In June, S&P Global Ratings cut anew its growth outlook for the Philippines to 6.1 percent in 2019, two percentage points lower than its previous forecast of 6.3 percent in April. Earlier in November, S&P had projected the Philippines to grow by 6.6 percent, a downgrade of two percentage points from its December call of 6.4 percent.

In June also, the ASEAN+3 Macroeconomic Research Office (AMRO) revised its Philippine economic growth forecast for 2019 to 6.3 percent, one percentage point lower than its prognosis a month ago of 6.4 percent.

Last week, the Asian Development Bank (ADB) likewise revised its economic growth forecast for the Philippines for 2019 to 6.2 percent, two percentage points lower than its previous forecast. This was the third consecutive time the multilateral lender lowered its growth projection.

The most recent and most harsh warning bell came from Hongkong and Shanghai Banking Corp. with the statement that economic growth may even fall below six percent this year if government spending and investments in the following months would not pick up.

HSBC cited May data that showed infrastructure spending down by 19 percent compared to May 2018, and government spending lower by five percent during the same comparable months.

Numbers game

Playing with numbers, we all know that the government has to come up with some plan that would be able to negate the dismal 5.6 percent economic growth during the first quarter of the year. Even the most optimistic estimated growth for the second quarter of the year will likely not be enough to pull up the low growth from January to March.

This only means that gross domestic product growth will have to be two or more notches higher than six percent to compensate for the poor showing during the first half of 2019, one that could be seen as the slowest growth by the country since 2011.

Thus, whenever Finance Secretary Carlos Dominguez III invokes God’s will when talking about economic growth for the rest of the year, a tingle of apprehension is evoked among those who can manage to read between the lines.

Dominguez from time to time talks about the government being up to some challenging times in trying to ramp up its delayed spending spree during the next five months, citing repeatedly that the second semester of the year is the time when heavy rains and storms disrupt infrastructure work.

Of the programmed P3.774-trillion spending budget approved for this year, P1 trillion is for infrastructure. With the delayed release of the budget, all concerned government agencies will have to speed up spending at least P145 billion every month without fail.

For government agencies like the Department of Public Works and Highways that have perennially underspent their previous annual allocations, this will require some major management wizardry to motivate people, fill up big gaps in resources, and properly manage thousands of projects spread throughout the archipelago.

The DPWH is also grappling with a kind of culture shock, having been allocated around P100 billion for their whole-year budget during previous administrations, which is now equivalent to what it has to spend in less than 30 days.

Foolproof catch-up plan

One of the best options for a good catch-up plan could have been the lifting of a spending ban on infrastructure projects during the last election period in consideration for the four-month delay caused by the legislative squabbling over the proposed 2019 budget.

But that’s water under the bridge now. Without a foolproof catch-up plan that will take into consideration even typhoons and strong rains in the coming months, it will be difficult to muster a miracle.

Private sector investments in Philippine infrastructure will need to take an upper hand now in the economic team’s catch-up plan. The temptation to accept project proposals hook, line and sinker is very real, which could mean projects that may be slapped higher interest rates, or not built to the best standards.

More loans from China, Japan and the United States are options, so is securing financing from multilateral lenders like the Asian Infrastructure Investment Bank and the ADB.

Jumpstarting more of the flagship projects within the next months, many of which will be funded through official development assistance, hopefully will help ramp up the country’s infrastructure spending this year and put a stop to a deceleration growth.

Should 2019 GDP growth dip below the government’s lower-end goal, this will be a first since 2011 when the economy registered a growth of 3.7 percent. Thereafter, the GDP growth rate had always been at 6.1 percent or higher.

External headwinds

Economic think tanks, as well as concerned financial institutions, are not discounting the disruptive effects of external headwinds like the ongoing trade spat between the US and China, and the economic uncertainties in Europe.

Nobody knows for sure how the global economy will fare this year given all the brewing threats. Our neighboring countries have already been affected to varying extents, and this has vaulted the Philippines to a position of being the strongest economy in the ASEAN region.

Of course, this could easily translate to being the strongest among laggards if we too find ourselves growing just a wee bit better than Indonesia, Thailand, Malaysia and Singapore (5.1, 4.8, 4.5 and 1.2, respectively during the first quarter of 2019) – which is really a pity.

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