AMRO sees PHL resilient vs 2019 risks

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By Melissa Luz T. Lopez
Senior Reporter

PHILIPPINE economic growth will likely pick up this year, a regional think tank said in a report released on Monday, even as it advised monetary and fiscal authorities to be mindful of short-term external risks and keep interest rates “appropriately tight.”

The ASEAN+3 Macroeconomic Research Office (AMRO) has bumped up its growth forecast for the Philippines to 6.4% this year, according to 2018 Annual Consultation Report on the Philippines published yesterday.

The new estimate is higher than the 6.3% given in January and the 6.2% actually clocked in 2018, but will still settle far below the government’s 7-8% growth goal.

“In 2019, economic growth is projected to stay resilient, supported by robust domestic demand. However, policy makers need to remain vigilant on the development of short-term risks and get ready to recalibrate their policy mix to sustain macroeconomic stability,” AMRO said in the report, which is based on findings during the annual visit done in October and from data as of Jan. 25 this year.


AMRO — initially formed as a company in April 2011 and transformed into an international organization in February 2016 — conducts macroeconomic surveillance and supports implementation of the Chiang Mai Initiative Multilateralization currency swap arrangement which the 10 members of the Association of Southeast Asian Nations (ASEAN), as well as China, Japan and South Korea (ASEAN+3) adopted to help avert any financial crunch.

The think tank noted that the Philippines’ growth momentum will “gradually recover” this year as domestic demand picks up, now that inflation is expected to settle back to the central bank’s 2-4% target versus 2018’s 5.2% pace.

“The government’s ‘Build, Build, Build’ infrastructure program will continue to provide impetus to the economy. Private consumption is also expected to recover as inflation pressure eases and consumer confidence is restored,” AMRO said.

“However, the balance of risks to growth is tilted to the downside, with the potential impact from trade conflicts and sharp tightening global financial conditions.”

Areas of concern include possible higher-than-expected inflation as well as pockets of “financial vulnerabilities,” although these are expected to have a low to medium impact on the overall economy.

AMRO recommended that both fiscal and monetary policy measures should be “calibrated” to ensure they support faster expansion. “Monetary policy stance should remain appropriately tight to anchor inflation expectation and curb second round effects. In particular, the policy stance should be aligned with its primary mandate of achieving price stability, with policy decision contingent on the outlook for inflation over the policy horizon and assessment of demand pressures based on domestic and external conditions,” AMRO added.

The Bangko Sentral ng Pilipinas (BSP) fired a total of 175 basis points worth of interest rate hikes in 2018 to rein in surging inflation that hit nine-year-high 6.7% in September and October, but has stood pat on rates since November as overall price hikes cooled.

“Although inflation has started to trend downward, it would be prudent to keep monetary policy on hold for now until inflation is firmly within the official inflation target band,” the report read.

On the fiscal front, tax reforms need to be crafted carefully to minimize possible drags on jobs and investments, while spending efficiency must be observed particularly for infrastructure projects.

AMRO has recommended keeping a neutral fiscal stance at a time of heightened price pressures, spending bottlenecks and a weaker external position.

The administration of President Rodrigo R. Duterte has been operating under a re-enacted budget pending enactment of the 2019 national spending plan. The proposed P3.757-trillion national budget assumes a wider fiscal gap equivalent to 3.2% of gross domestic product to accommodate increased expenses, largely for big-ticket infrastructure projects.