Tighter credit, trade row to cap growth

By Melissa Luz T. Lopez
Senior Reporter

THE UNITED NATIONS Economic and Social Commission for Asia and the Pacific (UN/ESCAP) on Thursday joined other multilateral groups in scaling down growth forecasts for the Philippines, even as it assured that expansion will be faster than last year as more infrastructure projects go live.

The UN/ESCAP slashed its Philippine growth projection for this year to 6.5% from 6.9% previously, saying that “monetary tightening” last year plus global trade tensions will dampen local prospects.

However, this means that growth will pick up from 2018’s 6.2% pace and will fall within the government’s 6-7% downward-adjusted goal.

Last year, the Bangko Sentral ng Pilipinas (BSP) raised benchmark interest rates by a total of 175 basis points (bp) to rein in inflation expectations, following price spikes led by rice and other crops.

This, in turn, pushed market borrowing costs higher, with the 4.75% key rate used as reference for market rates still at a decade high.

The BSP has yet to undo last year’s series of rate hikes, having decided last month that it needs to confirm that inflation’s slowdown since November last year will be sustained.

Meanwhile, global uncertainty given current trade tensions between the United States and China is expected to affect the Philippines by way of higher financial costs. Still, the impact is seen “moderate” for the Philippines, Singapore and Thailand given their more diverse export markets.

Moreover, increasing state spending will help boost prospects. “… [A] pickup in government investment compensated for the decline in private investment in a few countries, driven by spending on infrastructure (Brunei Darussalam, India and the Philippines) and mining (Mongolia),” according to UN/ESCAP’s Economic and Social Survey of Asia and the Pacific report.

The administration of President Rodrigo R. Duterte has earmarked over P1 trillion for new and ongoing infrastructure projects this year, but cannot roll them out yet given delayed enactment of the P3.757-trillion national budget.

Based on UN/ESCAP’s estimates, the Philippines will be the fourth fastest-growing economy in Southeast Asia next to Myanmar (7.2%), Cambodia (7%) and Vietnam (6.7%). The region is projected to clock a slower 4.9% expansion this year and in 2020 from 2018’s five percent climb.

In 2020, Philippine GDP growth is seen clocking in at 6.6%, also well within the state’s downward-revised 6.5-7.5% target.

The UN/ESCAP estimates compare with 6.5% this year and 6.4% next year given last January by the UN Department of Economic and Social Affairs, the UN Conference on Trade and Development and the five UN regional commissions (including ESCAP) in their joint World Economic Prospects 2019 report; the Asian Development Bank’s 6.4% for this year and next and World Bank’s 6.4% this year and 6.5% for next year.

Q1 GROWTH SURGE EXPECTED
Also on Thursday, analysts from the First Metro Investment Corp. and the University of Asia and the Pacific said they expect growth to have surged last quarter even if the 2019 budget has been delayed.

“The relentless fall of the headline inflation to below four percent (year-on-year), i.e., within BSP target, has provided much-needed good news,” they said in their joint The Market Call report.

“The continuing delay in the enactment of the 2019 national government budget, after all, has placed a downside risk to GDP growth in Q1,” they added.

“Consumer spending should begin to recover in Q1, aided by more money in consumers’ hands due to election spending and to weakness in the US dollar.”

The analysts said they see inflation on track to even drop below three percent by the third quarter.

Inflation averaged 4.1% as of February, slightly above the central bank’s 2-4% target band and three-percent forecast average for 2019.