DBS cites export slump, budget troubles as growth risks

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THE ECONOMY will likely grow faster this year, a global bank said while flagging a sustained export slump and a reenacted budget as possible dampers of domestic activity.

In a report, DBS Bank said gross domestic product (GDP) growth may clock in at 6.5% in 2019, picking up from last year’s 6.2%. Consumption is expected to improve given that inflation has been easing, although full-year GDP expansion will still fall short of the government’s 7-8% goal.

Easing inflation will support household spending, coming from last year’s slowdown as commodity prices shot up faster than expected.

From a nine-year peak of 6.7% in September and October, inflation dropped sharply in the next two months to 5.1% in December, albeit still above the 2-4% target.

From a weak 5.2% climb in the third quarter, consumption growth improved to 5.4% during the last three months of 2018, which DBS took as a sign that softer household spending has bottomed out.

“As oil price has come down significantly and impact of higher excise taxes will finally wear off, inflation will ease further this year. Lower inflation and the upcoming midterm election to some extent will support consumption pickup this year,” DBS economist Masyita Crystallin said in a report published last week.

Despite the brighter outlook, Ms. Crystallin cited headwinds such as weak external trade amid subdued global demand, and possible hurdles to government spending due to the delayed passage of the 2019 budget.

“Delay of the 2019 budget could hurt investment sentiments… Budget is currently still under review and, if re-enacted, only a proportion of personal services, maintenance and operating expense, as well as capital outlays of regular programs and ongoing (multi-year) projects included in 2018 budget will be allowed by law,” DBS said.

Lawmakers in bicameral conference talks remain in a deadlock on the P3.757-trillion national budget, just one step away from legislative ratification and then for President Rodrigo R. Duterte’s signature. Currently, national government agencies are operating on a re-enacted 2018 budget, which leaves new infrastructure projects and programs unfunded.

Finance Secretary Carlos G. Dominguez III has said that the delayed budget has so far cost P46 billion worth of delayed projects in the first quarter, noting this would hurt growth for the period. The National Economic and Development Authority projects a 1.1-2.3 percentage point decrease in the full-year GDP print if the budget bill is not passed at all.

Ms. Crystallin pointed out that the budget delay puts big-ticket projects like the Metro Manila subway and the Mindanao Railway project at risk, despite strict timetables which economic managers wanted to stick to. Disrupted salary increases and funds for social services could also dampen growth prospects.

However, she did not sound the alarm bells just yet. “The impact on consumption (assuming budget approval in February) would be minimum and might be compensated by the increase in consumption due to easing inflation.”

The 45-day election ban on public works could likewise affect growth, the bank analyst added.

However, economic managers have said that they will ask the Commission on Elections to exempt flagship infrastructure projects in the “Build, Build, Build” pipeline from the poll ban so as not to disrupt spending plans and overall growth.

The economic team said the proposal will be discussed during the Cabinet meeting on Wednesday. — Melissa Luz T. Lopez