By Elijah Joseph C. Tubayan
Reporter
THE ECONOMY could take a beating this year and in 2019 from the central bank’s recent successive interest rate hikes and continued elevated inflation, according to ING Bank NV Manila, while First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) see fourth-quarter gross domestic product (GDP) growth matching the January-March pace to clock the fastest clip in three quarters.
Monday also saw S&P Global Ratings say in its Asia-Pacific Credit Conditions: Cold Wind Blowing report that such conditions in the region are expected to tighten further in 2019 amid rising US interest rates. At the same time, it counted the Philippines’ “huge infrastructure plans” — along with those of neighbors — as one of the things to watch in 2019, even as it flagged feasibility risks for government-driven projects.
“Our estimate of 2019 Philippines growth at 6.1% would be its lowest print since 2015, reflecting recent monetary policy adjustments and elevated inflation in 1H19. We expect a recovery in the second half of 2019,” Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila, said in a report.
If realized, it would be slower than the actual 6.7% logged in 2017, and the 6.3% average in the first three quarters of 2018. It would also fall short of the government’s 7-8% target for 2019.
“Recent monetary policy adjustments are expected to sap economic growth momentum, with GDP averaging 6.1% in 2019 and decelerating from 2018’s projected 6.2%,” the report read, noting that the “aggressive” interest rate hikes will weigh on consumption and investment — key growth drivers of the Philippine economy.
The Bangko Sentral ng Pilipinas (BSP) had raised interest rates by 175 basis points (bps) so far since May as it sought to rein into inflation that high a nine-year-high 6.7% in September and October, averaging 5.1% in the first 10 months against the BSP’s 2-4% target band for 2018.
The third quarter saw a slowdown in household consumption growth to 5.2% from 5.4% and 5.9% a year ago and a quarter ago, respectively. Investments, however, remained robust with government spending growth accelerating to 14.3% in the third quarter from 8.3% the past year and 11.9% in the second quarter, and capital formation growing 16.7% in the three months ended September from 10.3% in the same period last year, but slumped from 21.5% in the April-June period.
“Bangko Sentral ng Pilipinas may still need to hike rates (by 50bp) in light of continued Fed tightening and despite domestic inflation sliding back to within target,” the report read, adding that GDP growth will likely regain momentum when the BSP resumes reserve requirement ratio cuts by 200 bps next year.
BETTER THIS QUARTER FORWARD
FMIC and UA&P analysts said they see faster growth this quarter.
“… [W]e see a faster GDP growth of 6.6% in Q4, accelerating further in 2019,” they said in the November issue of The Market Call, citing “higher dollar remittances” that will “support consumption and should somehow buffer the contractionary spending effect of inflation”, plus an “extra push” from government and “holiday-spree consumer spending as 2019 May election campaign begins to heat up.”
“However… elevated inflation should put a ceiling to Q4 GDP growth at 6.6%,” the report read, adding that “[w]ith the peaking of inflation in September-October… latest policy rate hike of 25 bps on Nov. 15 will be the last until next year, even if the Fed continues its hiking cycle.”

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