PHILIPPINE economic growth prospects remain strong despite inflation challenges and external headwinds, the ASEAN+3 Macroeconomic Research Office (AMRO) said in a statement late Tuesday that showed projections were maintained from a previous report.
AMRO said its press statement reflected the “preliminary assessment” after its annual consultation visit to the Philippines last Oct. 15-24.
“The Philippine economy is expected to continue its robust growth, expanding by 6.5% in 2018 and 6.4% in 2019, broadly in line with its potential,” AMRO lead economist Siu Fung Yiu was quoted as saying.
“However, the economy is facing challenges from rising inflation; wider, tightening global financial conditions and an escalation of the ongoing global trade tensions,” he added.
“Thus, the authorities should strive to maintain the overall policy direction, while recalibrating the policy mix to maintain stability and guard against risks.”
AMRO’s estimates were kept from the Oct. 8 issue of its Regional Economic Outlook report.
They compare to the government’s downward-adjusted 6.5-6.9% full-year 2018 target and 7-8% for 2019 until 2022.
AMRO’s economic growth forecasts also compare with the World Bank and International Monetary Fund’s (IMF) 6.5% and 6.7% for 2018 and 2019, respectively, and the Asian Development Bank’s 6.4% and 6.7% for those years.
Economic growth clocked 6.3% last semester, compared to 6.6% in 2017’s first half, following a slower-than-expected six percent in the second quarter that was blamed on weak agriculture and export performance, and elevated inflation.
The overall rise in prices of basic goods averaged a nine-year-high five percent in the nine months to September, well past the government’s 2-4% target band for 2018.
AMRO said that GDP growth “is expected to pick up in the second half and to continue to expand robustly in 2019, driven by both consumption and an ambitious investment program to close the massive social and physical infrastructure gaps.”
“Going forward, inflation is expected to peak in the last quarter of 2018 and trend downward toward the middle of the target range in 2019,” it added, noting that inflation was caused by a combination of supply-side “shocks” and “robust” domestic demand.
“Amid the strong prospects for economic growth, near term challenges need to be properly addressed. The major challenges include uncertainty surrounding inflation such as rising inflation expectations, a higher-than-expected minimum wage increase; and a volatile external environment including the spillovers from the ongoing US-China trade conflict and higher interest rates in major economies,” the regional surveillance group said.
“To sustain high and stable growth over the long term, monetary policy should be appropriately tight to anchor inflation expectations and curb second round effects…. To further mitigate the impact of supply-side factors on inflation, non-monetary measures such as rice tariffication also need to be implemented in a timely manner,” the statement read, referring to plans to replace the current rice import quota system with one that liberalizes importation of the staple.
A return to a regular importation scheme is expected to slash retail prices of the grain by P7 per kilogram and shave 0.7 of a percentage point off inflation.
AMRO said that the Bangko Sentral ng Pilipinas’ cumulative 150-basis point hike since May, so far, is “commendable.”
It also welcomed efforts to strengthen hedging functions in the foreign exchange market, fortify macrofinancial surveillance systems and to develop more macroprudential measures.
Moreover, “[t]he enormous efforts taken by the government to push infrastructure investment and social spending will serve the country’s long-term development objectives well.”
At the same time, AMRO shared the IMF’s concern in cautioning the government to watch its budget deficit as it prods infrastructure spending. “[F]iscal policy should be calibrated to help contain inflation pressure and support the external position, through a reprioritization of expenditure,” it said. — Elijah Joseph C. Tubayan

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