PHL growth view steady despite inflation

By Elijah Joseph C. Tubayan
Reporter
THE ASIAN Development Bank (ADB) retained its growth forecasts for the Philippines despite faster projected inflation in its Asian Development Outlook Supplement published on Thursday.
The regional lender kept the 6.8% and 6.9% gross domestic product (GDP) outlooks for the Philippines for 2018 and 2019, respectively, faster than 2017’s 6.7%. GDP grew by 6.8% in the first quarter and economic managers are hoping for at least seven percent expansion in the succeeding three months. The government is targeting 7-8% GDP growth annually from this year up to 2022, when President Rodrigo R. Duterte ends his six-year term.
ADB’s estimates match the United Nations Economic and Social Commission for Asia and the Pacific’s forecasts for the two years, but are more optimistic than the 6.7% forecasts of the World Bank and the Organization for Economic Cooperation and Development for 2018 and 2019.
They also compare with Moody’s Investors Service’s 6.8% estimate for 2018, Fitch Rating’s 6.8% for 2018 and 2019 and S&P Global Ratings’ 6.7% and 6.8% for this year and for 2019, respectively.
Philippine growth is expected to outpace Southeast Asia’s 5.2% GDP growth average until next year and developing Asia’s six perccent and 5.9% for 2018 and 2019, respectively.
Vietnam is projected to lead Southeast Asia this year with 7.1% before slowing to 6.8% in 2019.
Projected Philippine growth will be faster than China’s 6.6% and 6.4% up to next year but slower than India’s respective 7.3% and 7.6%.
At the same time, ADB raised its inflation outlook for the Philippines to 4.3% this year from four percent previously — against the central bank’s 2-4% target range and 4.5% forecast for 2018 — but maintained a 3.9% projection for 2019.
“This outcome combines with expectedly high global oil prices, peso depreciation and strong domestic demand to prompt this supplement to revise the inflation forecast for 2018 to 4.3% from the ADO 2018 forecast of 4.0%. Higher excise taxes on fuel and some commodities as part of the Tax Reform for Acceleration and Inclusion Act, which took effect in January 2018, are contributing factors,” the report read.
“The impact of tax reform on inflation is expected to be transitory, however, and normalize in 2019. Also arguing for maintaining the inflation forecast for 2019 at 3.9% are upward adjustments to monetary policy rates anticipated in line with tightening monetary policy globally.”
The central bank’s Monetary Board raised benchmark interest rates by 25 basis points each in May and June — the first policy tweaks in nearly four years — and expectations are mounting that quickening inflation, which clocked a fresh five-year-high 5.2% in June that brought the first-half average to 4.3%, will prompt another rate hike next month.