AMRO cuts anew growth outlook for Philippines

 MANILA, Philippines — The ASEAN+3 Macroeconomic Research Office (AMRO) has slashed its growth forecast for the Philippines anew to six percent this year and 6.4 percent next year largely due to heightened uncertainties abroad that can put pressure on growth.

In a report, AMRO said this downgrades the growth forecast made last July of 6.3 percent for 2019 and 6.5 percent in 2020.

The regional macroeconomy surveillance organization recently concluded its annual consultation visit to the Philippines from Sept. 30 up to Oct. 9.

Preliminary assessment showed that economic growth can recover from the slowdown in the first semester which was caused by the delayed passage of the national budget and the spending freeze before the mid-term election.

However, the Philippine economy is faced with short term risks coming from the intensifying trade spat between US and China, policies of major central banks, and a hard Brexit, among others, that can exert pressure on growth and cause volatilities in the financial markets.

As such, AMRO said macroeconomic policies should focus more on supporting growth amid global headwinds.

 “We expect the Philippine economy to expand by six percent in 2019 and 6.4 percent in 2020, respectively, marking a rebound from slowdown caused by the budget delay and spending freeze before the mid-term election,” said AMRO lead economist Siu Fung Yiu, who headed the consultation visit.

 “However, heightened uncertainties in the external environment could exert further pressures on the Philippines’ growth—because of the slowing global economy— and prompt financial market volatilities. Policies should be calibrated to address these challenges.”

AMRO said that despite the growth slowdown to 5.5 percent in the first semester of the year, the ramp up in fiscal spending particularly on infrastructure, will boost economic growth in the second half.

Because of this, “concerted efforts” must be made to make up for underspending in the first half of the year and to avoid any budget delay in 2020.

Inflation is also expected to stay within the target range of two percent up to four percent for 2019 and 2020 as global oil prices and food prices remain subdued.

AMRO said monetary policy should continue to ease to support the economy if inflation remains subdued and growth turns out to be weaker than expected.

 “The reduction of 75 basis points in policy rate and the staggered 300 basis points cuts in reserve requirements since May 2019 have led to a substantial easing in monetary conditions, providing support for the recovery in economic activities in the months ahead,” it said.

In the long-term, meanwhile, growth in the domestic economy is challenged by sustaining improvements in labor productivity.

Despite the challenging external environment, the shifts in global value chains present opportunities in the Philippines.

 “The Philippine authorities should continue to push forward key reforms and ensure effective implementation of ongoing reforms to lay a good foundation for long-term sustainable development. The authorities’ continued efforts to improve the doing business environment are also welcome,” said AMRO.