GDP growth to pick up as inflation slows

THE PHILIPPINE ECONOMY can be expected to grow faster this quarter and for the full year as slowing inflation spurs consumer spending, while state infrastructure spending and private construction should be able to sustain “their elevated trajectory,” according to separate analyses released on Monday.
The Union Bank of the Philippines, Inc. said economic growth may clock in at 6.4% this quarter, based on initial data from the bank’s forecasting model called Nowcasting Philippines.
The Philippine Statistics Authority is scheduled to report first-quarter GDP data on May 9.
Philippine gross domestic product (GDP) grew by just 6.2% in 2018, pulled down by a slower-than-expected pace of 6.1% in the fourth quarter as agriculture output slowed sharply, while inputs from services and the industrial sector also posted slower increases compared to 2017.
The administration of President Rodrigo R. Duterte is targeting GDP growth of 7-8% annually until 2022, when he ends his six-year term.
On the other hand, analysts from the First Metro Investment Corp. (FMIC) and the University of Asia & the Pacific (UA&P) said the Philippine economy is poised to expand faster this year, but flagged that budget delays could derail growth prospects.
“Early economic numbers showed a positive tone, especially with inflation receding fast, but downside risks lurk in the real economy in the horizon,” FMIC and UA&P analysts said the latest issue of their joint publication, The Market Call.
The analysts see GDP growth at 6.8-7.2% this year and inflation settling lower at 3-3.5%, a sharp drop from 5.2% in 2018.
“Our projections that headline inflation will ineluctably fall (year-on-year) to below the Bangko Sentral ng Pilipinas (BSP) target of 2-4% would suggest a rebound in consumer spending, boosted further by election-related spending,” the report added.
“Infrastructure spending and private construction should prolong their elevated trajectory, even though the risk posed on the former by the re-enacted budget may have a temporary effect in Q1-2019.”
The P3.757-trillion national budget is yet to be signed into law by Mr. Duterte, as Congress was able to finalize it only in mid-February. The government is operating on a re-enacted budget, leaving new programs unfunded.
Despite this, FMIC and UA&P analysts see infrastructure spending maintaining a double-digit pace of increase from the previous year, citing planned exemptions to the 45-day public works ban ahead of the May 13 midterm elections.
On the monetary front, the analysts expect as much as a 200-basis-point reduction in banks’ reserve requirement ratio within this quarter to free up more cash, noting that money supply growth has softened to single digit levels.
They also expect cuts to the benchmark interest rates by the third quarter “after headline inflation goes below three percent.”
Market watchers expect inflation to have slowed further in February to 4.1%, coming from January’s 4.4%. The central bank expects inflation to return to below four percent in March, with the full-year figure seen at 3.1%.
BSP officials have said that they will remain data-driven in their policy moves, noting that the easing inflation trend gives room for them to allow 2018’s rate hikes to work their way through the financial system. Deputy Governor Diwa C. Guinigundo also said that the year-to-date inflation rate as well as price expectations need to be well within target before they can unleash fresh cuts in required bank reserves. — Melissa Luz T. Lopez