S&P Global Ratings has again slashed its projection for Philippine economic growth this year, according to a report the debt watcher released on Wednesday, in the face of subdued state spending amid a four-month delay in enactment of the P3.662-trillion national budget and bigger-than-expected impact of the Sino-US trade dispute on electronics, which accounts for half of Philippine merchandise exports.

S&P — which at the end of 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 — cut its growth projection for the Philippines to 6.1% this year from a 6.3% forecast given on Apr. 3 (which in turn was down from 6.4% expectation given in December last year and 6.6% in November), and to 6.4% in 2020 from 6.5% previously.

Philippine GDP clocked in at 6.2% last year, marking the slowest annual pace in four years and missing a 6.5-6.9% government target for 2018, and recorded a 5.6% pace last quarter that was the slowest quarterly pace in four years and compares to a 6-7% state goal for 2019.

S&P also maintained Philippine GDP projections at 6.6% and 6.7% for 2021 and 2022, respectively.

“We continue to expect GDP growth to come in at the low end of the 6-6.5% range in 2019, with a likely resumption of the infrastructure build in the second half of the year to bring the fiscal impulse for the year to around neutral after being negative in the first half of the year,” S&P said in the June issue of its APAC Monthly Snapshots on “Trade Wars and Currency Concerns” that was e-mailed to journalists yesterday.

“We also expect BSP to maintain its easing bias this year, supporting growth, as inflation will likely stay benign especially compared to last year’s spike.”

The Bangko Sentral ng Pilipinas (BSP) maintained benchmark interest rates in its June 20 policy review after cutting them by 25 basis points (bp) on May 9 in the face of easing inflation and subdued GDP growth. It had raised such rates by a total of 175 bp last year as inflation clocked in at multi-year peaks, culminating in a nine-year-high 6.7% in September and October 2018.

Inflation has since been on a general downtrend, averaging 3.6% in the five months to May against a 2.7% BSP forecast and 2-4% target range for 2019.

S&P also noted that “[r]isks to external financing and exchange rate volatility are back on the radar as trade tensions re-escalate.”

“The spillovers of the trade dispute to the Philippine electronics sector could also be larger than we anticipated at least in the short run,” it said.

Overseas sales of Philippine goods fell by 2.1% year-on-year to $21.921 billion in the four months to April as shipments of electronic products — which accounted for 54.5% of total merchandise exports in that period — slipped by 0.6% to $11.948 billion. Besides subdued demand abroad, electronics and semiconductor companies in the Philippines have been facing uncertainty from government moves to remove tax incentives deemed redundant and a moratorium on new economic zones in Metro Manila.

“Domestically, a resurgence in inflation from food or oil prices remains possible and could weigh on the consumption recovery and the ability of BSP to ease at a time when the fiscal impulse was already negative in the first half of the year,” S&P said in the same report.

Household consumption contributes nearly 70% to national output. — RJNI

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