By Elijah Joseph C. Tubayan
THE WORLD BANK cut its economic growth forecast for the Philippines as sustained high inflation, lower infrastructure disbursements next semester due to reenactment of the national budget and continued weakness of global trade offset the lift from spending related to the May 13, 2019 mid-term elections.
In a statement on Friday, the Washington, D.C-based multilateral lender said it expects Philippine gross domestic product growth to settle at 6.4% this year and 6.5% in 2019, compared to the 6.5% and 6.7% respective estimates it made in October.
“As part of its forecasting exercise, the World Bank has updated its growth projections for the Philippines to 6.4 percent in 2018 and 6.5 percent in 2019, to reflect recent economic trends,” the statement read.
“While persistent high inflation may temper private consumption growth in the fourth quarter of 2018, a moderation in inflation in following quarters is expected to boost consumer confidence and raise private consumption in 2019,” it added.
Inflation peaked at 6.7% in September and October which was the fastest pace in nine years, although the overall pace of price increases slowed to six percent in November and averaged 5.2% in the first 11 months. This is above the central bank’s 2-4% target and sits at the higher end of the government’s official 4.8-5.2% forecast average for this year. The government, however, sees inflation to ease further in 2019, within the 3-4% range.
The World Bank said that the forthcoming reenacted budget in 2019 would slow public spending at least for the first semester.
“Investment growth however maybe be tempered in the first half of 2019 due to the possible reenactment of the first-quarter 2019 budget following a delay in the budget approval process.”
The Senate has conceded that it will not be able to finish deliberations of the proposed 2019 General Appropriations Act before the end of the year, and expects the spending plan to be enacted in February instead. That will be followed, however, by the ban on public works before the May 13 elections.
Deliberations in the House of Representatives on the proposed 2019 budget were stalled for about two weeks in August over lawmakers’ opposition to the Executive’s shift to a national budget based on the limited spending capacities of departments and agencies. The chamber approved the spending plan on final reading on Nov. 20, leaving little time for the Senate to study it carefully. Already, lawmakers from both chambers have flagged allegedly irregular “insertions” in the budget.
Economic managers have warned that non-passage of a new budget for 2019 may cut economic growth by 1.1-2.3 percentage points, as it disallows the spending for new projects, if non-enactment were to last for a whole year.
“Moreover, global trade is expected to remain weak, thus dampening exports,” said the World Bank, which in earlier reports had blamed simmering trade tensions between United States and China.
However, election-related spending would support GDP growth in 2019, according to the multilateral lender. “Also, the mid-term election in May is also expected to strengthen consumption by temporarily raising employment and disposable incomes in early 2019.”
The statement quoted World Bank Senior Economist Rong Qian as saying: “A strong, consistent delivery of the infrastructure investment agenda while sustaining improvements in health, education and social protection will be key to maintaining the robust and inclusive growth outlook of the Philippines.”
The World Bank ended its statement by saying that “the Philippines remains one of the fast-growing economies in the East Asia and the Pacific Region”, the reduced growth forecast notwithstanding.
The World Bank’s forecast compares with the Asian Development Bank’s 6.4% and 6.7% estimates for 2018, and 2019, respectively, the International Monetary Fund’s 6.5% and 6.7%, and 6.7% from the Organisation for Economic Co-operation and Development for both years.