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GDP expansion seen to pick up, but S&P trims projections

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THE ECONOMY stands a chance of still hitting the lower end of the government’s 6-7% growth forecast for this year, according to separate analyses by S&P Global Ratings as well as First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) that bared expectations of “acceleration” this semester from the first half’s disappointing 5.5% clip.

DEBT WATCHER CUTS FORECASTS
In its Asia-Pacific Quarterly: Confidence is Shaken but Policy is Stirred report, S&P said it has further slashed its 2019 GDP growth projection for the Philippines to six percent from a 6.1% penciled in June — citing spending impact from the three-and-a-half month delay in national budget enactment — 6.3% in April, 6.4% in December and 6.6% in November last year.

“Sentiment in the private domestic economy appears to have taken a significant hit over the past two quarters, which combined with a negative fiscal impulse in the first half to produce sub-six percent year-on-year growth for the first two quarters,” S&P said.

“The second half of this year could see some acceleration in growth to bring the overall figure to six percent for 2019, largely driven by a significant ramp-up in public investment as the government tries to catch up with its infrastructure plans,” it added.

For next year, the credit rater — which in April raised the Philippines’ credit rating a notch to “BBB+”, giving the country its best debt grade yet at two notches above minimum investment grade — slashed its economic growth projection to 6.2% from the 6.4% given in June (and from 6.5% previously).

“Next year… will see some extra support as this year’s monetary policy easing takes effect,” S&P said.




The central bank has slashed benchmark interest rates by a total of 75 basis points so far this year — with the last of three equal 25-bp cuts announced on Thursday last week — to four percent, 3.5% and 4.5% for overnight reverse repurchase, as well as overnight deposit and lending, respectively, in the face of inflation that has been slowing considerably from last year’s successive multi-year highs that culminated in a 6.7% nine-year peak in September and October. But that still left 100 bp from last year’s cumulative 175 bp hike, driving analysts to believe that more cuts will be on the table in either the Nov. 14 or Dec. 12 monetary policy reviews and further next year.

S&P slashed its Philippine GDP projection for 2021 to 6.4% from the 6.6% given in June, but kept its 2022 forecast at 6.7%.

The Philippines will be among the fastest growth among the 13 Asia-Pacific economies in the S&P report. For this year, it will be outpaced slightly by India and China which will grow by 6.3% and 6.2, respectively. But from 2020 to 2022, it will be second only to India’s seven percent, 7.1% and 7.4%, respectively. The Philippines will also be faster from 2019 to 2022 than Asia and the Pacific (4.9%, 4.8%, five percent and 4.9%) and emerging Asia (5.5% from 2019 to 20222).

S&P said that there will be “no end in sight for Asia-Pacific’s growth slowdown” with economic expansion “below trend in most economies, putting downward pressure on inflation.”

In the same report, S&P also said that the Philippines can be expected to join continued policy rates easing across Asia and the Pacific.

“Much of the region has already embarked on a rate-cutting cycle,” the credit rater noted.

“In the absence of a US recession or China hard landing, this cycle may not have much further to run, but it remains hard to see tightening on the horizon,” it said, adding that it expects more policy rate trims in Australia, India, Indonesia, Korea, the Philippines, and Thailand.

FMIC AND UA&P
In their joint The Market Call Capital Markets Research released also on Tuesday, FMIC and UA&P said that “huge job gains (2.3 million jobs in the year ending July), inflation expected to go below 1.5% by September and the revival of national government spending augurs well for faster GDP growth in the second half.”

Both outfits now expect overall economic growth to have picked up to six percent in the third quarter and to “accelerate further to 6.5%” this quarter, especially amid “huge spending on infrastructure and capital outlays in the third and fourth quarters…” That will result in 6-6.5% growth for 2019. — Luz Wendy T. Noble and Beatrice M. Laforga

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