Consumer spending seen driving GDP growth to 7%
By Melissa Luz T. Lopez
Senior Reporter
THE PHILIPPINE economy is expected to grow by 7% this year led by stronger consumer spending with Filipinos expected to have more take-home pay as a result of lower income tax rates, a consulting firm said.
Gross domestic product (GDP) will likely be higher in 2018, hitting the low end of the 7-8% growth target set by the government, according to the Wallace Business Forum (WBF).
“Favorable global environment… and increased government revenue from tax reform indicate a brighter outlook for the Philippine economy in 2018,” WBF said in its economic outlook as published in the Philippine Analyst.
“There will be multiple drivers of growth.”
If the growth forecast pans out, GDP will pick up from 2017’s 6.7%, and would be the highest since 2013’s 7.1%.
Household consumption is poised for robust growth according to the Forum’s estimates, with spending growth to accelerate to 6.5% from 5.5% in 2017. Stronger spending will be fueled by higher levels of take-home pay for a majority of Filipinos as a result of the tax reform law, which reduced the tax rates imposed on those earning less than P2 million annually.
The consultancy expects tax adjustments to add some P140 billion to household budgets.
“An additional push to private consumption will come from subdued inflationary expectations and the increased peso value of transfers to the families of overseas Filipino workers due to the modest peso depreciation,” the report added.
The peso last week hit 52.34 against the dollar, which is its weakest showing in nearly 12 years. At weak rates of exchange, families receiving remittances will see their peso spending power increase.
Domestic employment prospects are likewise expected to improve, with the robust economic activity expected to open more job opportunities.
Meanwhile, investment growth is expected to pick up by 12.3% in 2018 from 9.3% previously, largely supported by increased infrastructure spending. Public spending growth is also poised to rise to 6.7% from a 6% in 2017.
The government is looking to spend P8.13 trillion for 75 big-ticket infrastructure projects until 2022 under its Build, Build, Build initiatives, which will improve mass transport and the ease of doing business in the Philippines.
In particular, the construction and manufacturing sectors will remain the “growth pace-setters” in this year, the firm said. For the services sector, those engaged in banking, transport, trade and health care will see employment and revenue growth, which will likely offset weaker growth in the business process outsourcing industry.
Expansion plans among exporters will also support increased capital inflows by a tenth, which is slower than the previous year’s pace. Still, outbound shipments of goods will keep growing to match rising global demand, the WBF said.
Imports are also expected to grow by a tenth.
Looking ahead, the WBF flagged the succeeding tax reform packages, proposals to ease foreign ownership limits under the Constitution, and the rebuilding of Marawi as the three key policy developments that would affect the Philippines in 2018.
“Generally, these are positive influences, although their impact on the economy could vary in significance depending on how they play out,” the report noted.
