By Elijah Joseph C. Tubayan
PHILIPPINE economic growth will likely slow up to this year, according to latest estimates of a macroeconomic surveillance organization for the Association of Southeast Asian Nations (ASEAN) Plus 3 economies and HSBC Private Bank.
The ASEAN+3 Macroeconomic Research Office (AMRO) trimmed its Philippine GDP growth projections for 2018 and 2019.
AMRO sees gross domestic product (GDP) growth settling at 6.4% in 2018 and 6.3% in 2019 based on its January update of the ASEAN+3 Regional Economic Outlook (AREO) published on Wednesday.
This is slightly down from the 6.5% and 6.4% estimates for those years in AMRO’s October report.
If realized, growth will slow from the 6.7% logged in 2017.
This compares with the ASEAN+3 estimated average of 5.3% for 2018, down from 5.4% previously, and 5.1% for 2019, which was kept from the previous report.
AMRO’s inflation forecast for the Philippines in 2019 was also revised to three percent from 4.3%. This will moderate from the 5.2% inflation clocked in 2018, which breached the central bank’s 2-4% target range.
It is also faster than the region’s two percent and 2.2% average inflation estimates for 2018 and 2019, respectively — changed from 2.1% and two percent forecasts for the same respective years.
“Amid moderate growth performance with inflation starting to ease, some economies in the region have kept their interest rates on hold during their most recent policy meetings,” the report read, noting that “[t]he Philippines maintained the policy rate at 4.75%, following four rate rises since May, as the peso has strengthened slightly while inflation has started to moderate.”
Headline inflation reached a peak of 6.7% in September and October 2018, the fastest pace in nine years. The overall rise in prices of widely used goods slowed to six percent in November and eased further to 5.1% in December.
The surge in consumer prices has been blamed for slower-than-expected economic growth, traced to higher and new excise taxes on select goods and high world fuel prices.
Malacañang in September issued orders removing non-tariff barriers and streamlining procedures for food distribution.
The Bangko Sentral ng Pilipinas (BSP) raised interest rates by a total of 175 basis points in five Monetary Board meetings from May to November, and kept policy rates steady in its final meeting for 2018 in December.
GDP growth averaged 6.3% in the first three quarters of 2018, against the government’s downward-adjusted target of 6.5-6.9% for that year. For 2019, the target is at 7-8%.
AMRO’s latest forecasts compares with the World Bank’s 6.4% and 6.5% for 2018 and 2019 respectively, the Asian Development Bank’s 6.4% and 6.7% estimates for 2018 and 2019, respectively, the International Monetary Fund’s (IMF) 6.5% and 6.7% for the same years, and 6.7% of the Organization for Economic Cooperation and Development for both years.
Moreover, AMRO said in a separate blog post that the ASEAN+3 area — consisting of the 10 ASEAN members plus China, Japan and South Korea — faces a “high likelihood” of “high impact” risk from further escalation of the US-China trade conflict.
But it also noted that the area “has done well and remains the fastest growing region in the world”, with “most economies… growing at close to or slightly above potential with subdued inflation.”
The Philippines, along major ASEAN economies such as Indonesia, Malaysia, Thailand, and Korea “continue to have relatively strong external positions with adequate reserves and current account balances that are either in surplus or in small deficit,” AMRO said.
The regional surveillance body said that countries should rain vigilant for potential downside risks.
“For economies facing strong external headwinds and spillovers, policy makers have preemptively tightened monetary policy to help assuage market concerns. On the fiscal front, prudent public finances have allowed fiscal policy to play a crucial countercyclical role, helping to support growth. However, with the narrowing fiscal space, authorities would need to reprioritize spending to support structural reforms and growth,” AMRO said.
“Policy makers should continue to remain vigilant, with no room for complacency. Longer term structural reform agenda should also be pushed ahead, such as in building capacity and connectivity to foster resilience and enhance future growth prospects,” it added.
For HSBC, Philippine GDP growth will ease slightly this year due to higher interest rates even as private consumption is seen to remain strong.
HSBC projects GDP growth to moderate to six percent this year from the 6.2% projected for 2018.
“We anticipate the economic growth in the Philippines to stay relatively resilient, in line with the synchronized global slowdown scenario,” HSBC Private Banking Chief Market Strategist in Asia Fan Cheuk Wan said in a press conference on Wednesday.
For this year, the private lending unit of the HSBC Group expects the BSP to “approach the end of its tightening cycle” by hiking its benchmark rates by 25 basis points in the first quarter.
“We still have the excise tax increase. This will continue to underpin inflation concerns at the beginning of the year,” Ms. Fan added. “But after a Q1 BSP rate hike, and with the impact of the oil price correction of last year… we will start to see easing inflationary pressures in the Philippines.”
HSBC projects local headline inflation clocking in at 3.8% for whole-year 2019, well within the BSP’s 2-4% target band.
It also expects the “Philippine Stock Exchange index to recover to 8,600 by the end of 2019 after the sharp correction last year.” — with Karl Angelo N. Vidal
Performance projections for Southeast Asia, select major Asian economies