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Moody’s Analytics sees faster growth

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By Reicelene Joy N. Ignacio
Reporter

PHILIPPINE gross domestic product (GDP) expansion should pick up this year despite disappointing first-quarter growth, Moody’s Analytics said over the weekend, citing a boost from continued monetary policy loosening that can be expected from the Bangko Sentral ng Pilipinas (BSP) as inflation eases further.

“GDP growth is forecast at 6.5% in 2019 after the 6.2% gain in 2018. We expect inflation will remain within the BSP’s 2-4% target range this year, a positive development that allows the central bank to further loosen monetary settings,” Katrina Ell, economist at Moody’s Analytics, said in an e-mail.

“Our expectation is the BSP continues loosening benchmark policy rates over 2019 with a cumulative 75-basis point (bp) reduction as our baseline scenario over the year,” Ms. Ell said in response to queries.

“We also expect cut to RRRs (reserve requirement ratio) over the year after 200 basis points (cuts) were delivered in 2018.”

Moody’s Analytics had said in a February report, titled: ASEAN Outlook: Slower Momentum, that it expected the Philippines “to remain one of Asia’s fastest-growing economies in 2019,” with GDP “expected to expand by more than six percent this year” on the back of spending related to the May 13 mid-term elections, easing inflation and still-“robust” state infrastructure spending despite the four-month delay in 2019 national budget enactment.




The BSP on Thursday last week partially dialled back its 175-bp cumulative interest rate hike last year that raised its benchmark overnight reverse repurchase (RRP) rate to a decade-high 4.75% hours after the Philippine Statistics Authority (PSA) reported first-quarter GDP growth at a four-year-low 5.6%, largely due to the impact of a delayed national budget, and two days after the PSA said inflation eased in April to a 16-month-low three percent.

BSP’s 25bp cut last Thursday left the RRP rate at 4.5%.

At the same time, the BSP left intact banks’ RRR — which central bank Governor Benjamin E. Diokno in March described as still “really high” at an already reduced 18% — but he said last week that this issue will be discussed in the Monetary Board’s weekly meeting on Thursday.

Economic managers have admitted that they are hard-pressed to catch up with their expenditure program after a four-month delay in enactment of the national budget — slashed by P95.3 billion to P3.662 trillion when President Rodrigo R. Duterte signed it into law in mid-April — which deprived the government of P1 billion in spending a day in that period.

Simmering trade tensions between the world’s two biggest economies — the United States and China — have weighed on Philippine merchandise exports, which fell for a fourth straight month in March and marked a 3.1% year-on-year drop last quarter.

That, plus a 4.7% year-to-date increase in imports of goods, made the trade gap widen to $9.801 billion last quarter from a $8.103-billion year-ago shortfall.

PSA also reported last week that manufacturing fell for a fourth straight month in March, fueling a 6.6% year-to-date drop versus 12.3% growth in 2018’s comparable three months.

“We expect exports and broader manufacturing will remain subdued in 2019. The still unresolved trade war is an additional downside risk,” Ms. Ell added.