ADB, S&P temper PHL growth forecasts

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Asian Development Bank (ADB)

By Melissa Luz T. Lopez
Senior Reporter

THE PHILIPPINE ECONOMY will likely grow faster this year with household and state spending on the rise, the Asian Development Bank (ADB) and global debt watcher S&P Global Ratings said in separate reports released on Wednesday, even as global uncertainties have prompted them to slash growth projections for the country and for Asia Pacific in general.

In its Asian Development Outlook report, the regional lender said gross domestic product (GDP) will grow 6.4% this year, faster than 2018’s 6.2% albeit below the 6.7% estimate it gave in December. The lower forecast factors in a global slump that will hurt the country’s export of goods, as well as a brewing dry spell that could weigh on farm output.

Despite this, the Philippines is one of the three Southeast Asian states where growth is seen picking up from 2018, alongside Brunei and Myanmar. In Southeast Asia, the Philippines will be outpaced by Cambodia, Laos, Myanmar and Vietnam.

“There are two reasons: (the Philippines) is less vulnerable to a sharp slowdown in exports. The second is public spending on infrastructure… It has a major infrastructure spending program that’s keeping economic growth well above the other neighboring countries,” ADB country director Kelly Bird said in a press briefing.

Despite dimmer global prospects that could “moderate” growth in exports, Mr. Bird added that the Philippines remains on a “very healthy” growth path that can be sustained over the next few years. The steadily growing business process outsourcing sector as well as strong remittance inflows are seen to cushion weaker trade in goods.

ADB’s Philippine growth outlook for this year will outpace the 5.7% average for “developing Asia,” which expanded by 5.9% in 2018.

Philippine GDP growth is seen at 6.4% next year.

In its report, S&P likewise scaled down its growth forecast for the Philippines further to 6.3% from 6.4% previously. Philippine growth will pick up to 6.5%, 6.6% and then to 6.7% from next year to 2022.

The Philippines 2019 projection compares to S&P’s 5.2% forecast for Asia-Pacific growth this year from an initial 5.3%, compared to an actual 5.4% expansion in 2018. Southeast Asia will grow by 4.9% this year from five percent in 2018, five percent next year and 5.1% each in 2021 and 2022.

The credit rater said weaker global demand for electronics exports, as well as higher borrowing costs due to the central bank’s rate hikes in 2018, will dampen domestic demand.

These changes match the World Bank’s revision of Philippine growth prospects to 6.4% from an earlier 6.5% projection.

For the ADB, continued trade tensions between the United States and China remain the key risk to growth, coupled with uncertain policies and financial volatility amid a delayed Brexit as well as policy moves of the Federal Reserve.

Back home, an El Niño-induced dry spell as well as the delayed enactment of the 2019 national budget could stand in the way of faster expansion. Mr. Bird said the government will likely play catch up with its infrastructure spending plans, as seen through bigger state spending February despite the delayed budget.

“That tells me that they are implementing programs and projects now. They know what they are going to spend on. Once the budget is approved, I think that risk will disappear,” Mr. Bird added, noting that the government has the fiscal space to pour more funds into infrastructure given its declining debt burden.

Lower inflation — which the ADB expects to settle at 3.8% this year versus 5.2% in 2018 — should also help lift private consumption, together with improving business and consumer sentiment.

The Philippines is also seen to enjoy a lift from a sound macroeconomic environment, fortified by “very proactive” reforms enacted the past year. In particular, the ADB cited the updated central bank charter, the law shifting to a tariff scheme for rice from previous quantitative restrictions, and Corporation Code amendments as landmark measures.

The regional lender emphasized the need to focus on farm productivity and rural development, as well as on investing on disaster resilience and insurance versus climate change-related risks.

ADB data showed that 84% of people affected by natural disasters are in Asia, hence, the need to focus on climate-friendly and disaster-resilient structures to reduce future losses of lives and property. The Philippines is one of 20 countries considered most vulnerable to natural disasters and climate change. The Finance department has said that more than 1,000 deaths occur yearly in the country due to natural calamities, with typhoons accounting for 74% of lives lost, 62% of damage to properties and 70% of damage to agriculture.