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PH growth seen to end 2019 below govt target

PHILIPPINE economic growth could end below the government’s 2019 target despite expectations of a second-half pick-up in consumption and public spending.

Full-year gross domestic growth (GDP) estimates compiled by The Manila Times range between 5.7 and 6.3 percent with a 5.9 percent average, well below the government’s downwardly revised 6- to 7-percent goal and lower than last year’s 6.2-percent expansion.

Year-to-date growth stands at 5.5 percent — after slower-than-expected 5.6 percent and 5.5-percent GDP upticks in the first and second quarter, respectively — and has been attributed to lackluster state spending.

Economic managers have blamed the delayed approval of the 2019 national budget. Actual infrastructure spending reached P311.4 billion in the first half, lower than the P392.9 billion programmed for the period. This means the state underspent by P81.5 billion.

A dispute between the Senate and the House of Representatives over alleged insertions resulted in the four-and-a-half-month delay of the passage of the 2019 budget. This forced the government to run on last year’s outlay, limiting it to spending for items detailed in the 2018 Appropriations Act and not on programs and projects supposed to be implemented this year.

With the impasse over, analysts expect government spending to pick up and complement strong consumption growth.

Rizal Commercial Banking Corp. economist Michael Ricafort offered the most upbeat view, forecasting 2019 economic growth of between 5.8 and 6.3 percent.

“One of the major growth drivers of the Philippine economy would be increased government spending, especially on infrastructure. With the increased amount of infrastructure spending as a [percentage] of GDP, [the country should be] able to catch up” with its neighbors in the region, he said.

Strong employment data, he added, also bodes well for consumer incomes and spending, which accounts for about 70 percent of the economy.

Other expected drivers of growth include easing inflation, supporting relatively lower interest rates that would increase investments and other economic activities; tax reform measures that would help improve the country’s fiscal performance and credit ratings; faster loan or credit growth; a narrower trade deficit; some pick-up in exports and manufacturing; stronger growth in overseas Filipino workers remittances; sustained growth in business process outsourcing revenues; and continued growth in foreign tourism.

Analysts from ING Bank Manila, Security Bank Corp. and IHS Markit, meanwhile, also believe economic growth won’t slip below 6 percent this year.

ING Bank Manila senior economist Nicholas Antonio Mapa expects growth to average 6.4 percent in the second half to carry annual growth to 6 percent for the year.

“The Philippines [is] likely see growth accelerate as all sectors of the economy come to life, with consumption aided by benign inflation, capital formation boosted by [the] BSP’s (Bangko Sentral ng Pilipinas) rate cuts, and government spending back online after the budget delay…,” he said.

Mapa also said 2019’s fortunes would hinge on keeping inflation in check and the central bank providing commensurate support by implementing accommodative monetary policies.

A combined 50-basis-point cut implemented by the BSP in May and August brought overnight borrowing, lending and deposit rates to 4.25 percent, 4.75 percent and 3.75 percent, respectively.

Monetary authorities also cut their 2019 inflation forecast to 2.6 percent from 2.7 percent and their 2020 projection to 2.9 percent from 3.0 percent. They also forecast inflation to settle at 2.9 percent in 2021.

Security Bank Corp. Assistant Vice President and chief economist Robert Dan Roces, for his part, forecast GDP growth “to be at or a little over” 6 percent for this year.

The downward trajectory of the country’s inflation rate should be positive for domestic consumption and policy rate cuts are also expected to improve business sentiment, consumption, and sustain income and employment through private investments.

“This shall be further complemented by the continuous tapering of inflation and the government’s infrastructure projections as spending takes off in the second half and drive growth for 2020,” Roces added.

IHS Markit Asia Pacific chief economist Rajiv Biswas, meanwhile, said growth was expected to remain robust this year and the next at around 6 percent.“Key pillars of the economy’s momentum in 2019 and 2020 are private consumption and government infrastructure building,” he said.

Private consumption expectations, in particular, were pinned to improvements in household incomes.

“An important factor supporting the growth outlook is the resilience of remittances from [Filipino] workers abroad,“ Biswas added.

Offering below 6-percent outlooks, on the other hand, were analysts from Bank of the Philippine Islands (BPI), Moody’s Analytics and United Kingdom-based Barclays.

BPI research officer Rafael Alfonso Manalili projected growth of 5.9 percent, saying the typhoon season could prevent the government from fast-tracking infrastructure projects.

“Nevertheless, we think the decline in investment/infrastructure spending is just transitory. Strong consumer demand will continue to drive business expansion, which in turn requires investment spending,” he added.

Moody’s Analytics economist Katrina Ell gave a 5.8-percent forecast, with central bank monetary policy easing expected to support consumption.

“Easier monetary settings will help ensure [that] the Philippines remains one of Asia’s fastest-growing economies this year,“ she added.

Barclays economist Angela Hsieh sees 5.7-percent growth, also highlighting that fiscal policy is likely to be the key growth driver in the last six months as the government finally begins building some of its key infrastructure projects.

A benign inflation outlook, coupled with continued easing bias by the BSP, will also support growth in the second half of 2019 and 2020, she added.

“Even though FDI (foreign direct investments) and remittances growth could potentially be dragged down by rising external uncertainties and headwinds, we believe that [Philippine] growth is likely to be relatively insulated compared to its regional peers, thanks to its resilient domestic demand and a strong pro-growth stance by the government and the central bank,” Hsieh said.

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