State spending to sustain GDP growth
By Elijah Joseph C. Tubayan
Reporter
THE Organization for Economic Cooperation and Development (OECD) sees Philippine economic growth sustaining its 2017 growth pace until next year on the back of government spending that will take up the slack from weaker private consumption and export growth.
The OECD expects Philippine gross domestic product (GDP) to grow 6.7% this year and in 2019, falling short of the government’s 7-8% targets for these two years but still faster than a 5.3% forecast for Southeast Asia in the same periods and the 6.6% and 6.5% averages for 2018 and 2019, respectively, for “emerging Asia,” a group that covers the 10 members of the Association of Southeast Asian Nations (ASEAN) plus China (6.7% this year and 6.4% next year) and India (7.4% this year and 7.5% in 2019).
All three less developed ASEAN members — Cambodia, Laos and Myanmar — will lead regional growth, but among the seven bigger ASEAN economies, only Vietnam will grow faster than the Philippines at 6.9% this year and 6.6% in 2019.
“The Philippines is estimated to replicate its 2017 GDP growth of 6.7% in 2018 and in 2019,” the OECD said in its preliminary report for the Economic Outlook for Southeast Asia, China and India 2018 – Update that follows the 2018 report presented at the ASEAN-East Asia Summit in Manila in November last year.
“Government spending and public investment will likely anchor economic growth, with private consumption facing some friction and exports substantially weakening.”
The Philippines’ latest estimates are faster than the 6.4% average forecast for 2018-2022 which the Paris-based organization gave in November last year.
Propelling state spending potentially faster, the bi-annual report added, would be front-loaded disbursements ahead of next year’s mid-term elections.
“Upcoming regional events are likely to increase countries’ motivation to implement and complete infrastructure projects. Several elections are expected in the near term. Public investment in democracies tends to peak 21-25 months before elections, including through the construction of high-visibility projects ready to be built,” OECD said.
“Planned upcoming general elections… in the Philippines in May 2019… are likely to provide additional incentives to announce and deliver on infrastructure projects.”
The OECD’s latest forecast for the Philippines matches the World Bank’s 6.7% estimate for 2018 and 2019, but is slower than the Asian Development Bank’s and United Nations Economic and Social Commission for Asia and the Pacific’s 6.8% and 6.9% projections for the same two years.
It also compares with Moody’s Investors Service’s 6.8% estimate for 2018, Fitch Rating’s 6.8% for 2018 and 2019 and S&P Global Ratings’ 6.7% and 6.8% for the same two years, respectively.
CONFIDENCE
Noting that “[t]he acceleration in GDP growth was propelled mainly by government spending, which rose by 13.6%, from 0.1% a year earlier” while “growth in private spending, fixed investment and gross exports weakened during the period,” OECD said: “A similar pattern seems likely in the coming quarters.”
“Government consumption is expected to remain buoyant; revenue intake is on track to surpass targets, as seen in the first four months of 2018,” the group added, noting that investment has “room to grow faster than before,” but will depend on agencies’ efficiency in implementing projects.
The OECD noted that the record $10-billion foreign direct investment net inflows to the Philippines in 2017 were “indicative of well-grounded investor confidence presumably due to optimistic economic prospects and the strong infrastructure campaign.”
Moreover, the OECD noted that lower personal income tax rates granted by Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion law, could further fuel household consumption — which contributes over 60% to overall economic output — although weaker remittances from abroad and quicker inflation could soften it.
“Private spending can benefit from lower income-tax payments covering most workers. Some degree of monetary accommodation (exemplified by reserve requirement ratio adjustments) will help. Yet, the moderation in overseas remittances could drag down household spending growth,” the report read.
It noted that the January-April remittance growth of 3.5% was slower than the 4.2% in 2017’s first four months
“Rising domestic prices and lower consumer optimism in Q1-Q2 2018 and relatively weaker tourism prospects — due to the government’s decision to close a top destination for rehabilitation — can also further stifle private spending,” OECD said.
“The higher global fuel prices and the continued weakness of the currency will likely provide ammunition to inflation in the coming months,” it added.
“The central bank may have raised its policy rate, but the impact of this move may be limited since the push comes largely from the supply side. The reduction in the reserve requirement ratio will also keep the liquidity in the system ample.”
Inflation clocked at a five-year-high 5.2% in June, fueling last semester’s pace to 4.3% that is beyond central bank’s 2-4% target for 2018 though short of a downgraded 4.5% full-year forecast average.
“Separately, offshore goods shipments nominal growth slowed down in the first four months of 2018,” the report added, noting: “This slowdown sends a pessimistic signal to domestic production.”
“However, the encouraging growth of the industrial production index and net sales index in the same period suggests that the volume of orders for future shipments is somewhat picking up.
JOHN HERRERA, the Filipino designer who was named Britain’s Top Designer in 2017, has just opened his eponymous flagship store at Edsa Shangri-La Plaza. There, 10 to 15 pieces of his off-the-rack bridal gowns and evening dresses are available.