UA&P sees GDP growth picking up next year

By Melissa Luz T. Lopez
Senior Reporter
THE PHILIPPINE ECONOMY could grow faster in 2019 on the back of strong investments and spending related to the midterm elections, while slower inflation should help prod household consumption.
Economists at the University of Asia & the Pacific (UA&P) said in a briefing yesterday that faster gross domestic product (GDP) growth can be expected next year, together with a recovery of financial markets from the current slump.
UA&P professor Victor A. Abola said economic growth will rebound to above seven percent in the coming quarters as infrastructure spending remains “on track” and sustains above 20% year-on-year increases.
“I think growth can accelerate especially in light of the elections, which usually add 0.1-0.2% to GDP. Growth will be led again by the industrial sector, especially construction and manufacturing,” Mr. Abola said in the UA&P Year-end Business Economics Briefing.
The economics expert said Philippine gross domestic product (GDP) will expand by 6.8% in 2019, faster than the 6.5% expected this year although still short of the government’s 7-8% target.
The Philippine economy has so far grown by 6.3% from January-September.
Growth will remain investment-led while manufacturing and exports have also recovered over the past few months, Mr. Abola added. An expected rebound in the mining sector may also support greater domestic activity, following the recent decision of Environment Secretary Roy L. Cimatu to reopen some mine sites shut down in 2017.
Household spending will likewise lend a boost to overall growth after easing in the face of higher prices of consumer goods. Mr. Abola said inflation has peaked at 6.7% in September and October, and will drop sharply particularly during the second half of 2019.
From 5.2% this year, UA&P sees inflation lower at 4.3% in 2019, although still above the central bank’s 2-4% target band.
Food prices have stabilized or fallen, while oil prices are down by roughly 25% percent from October’s peak. An appreciating peso would also give peace to importers, and will support positive investor sentiment towards the Philippines.
FOREIGN INVESTMENTS
UA&P economists said loosening restrictions on foreign ownership and keeping tax incentives for companies are needed to keep investments coming in.
“My proposal is don’t scare investors. Do it on tax administration, and use the political power of President Duterte to scare off [tax evaders],” Mr. Abola said, referring to the second tax reform package proposed by the Department of Finance (DoF).
Awaiting Senate action is the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) Act, which was passed by the House of Representatives in September.
The measure seeks to gradually reduce the corporate income tax rate to 20% from the current 30% by two percentage points every other year starting 2021, while fiscal perks will be revamped to a one-size-fits-all scheme for incentives capped at a certain number of years. This is to plug over P300 billion in annual foregone revenues, the DoF said.
“If it were true that our tax incentives are so attractive and we’re giving away so much, how come we are not getting foreign investors in troves? We have high costs, and we have to offset that by incentives,” Mr. Abola added.
Economist and Constitutional framer Bernardo M. Villegas said the bill is dead in the water due to little time left for Congress sessions and as lawmakers are cool to the measure.
In the same forum, World Bank senior economist Rong Qian said easing foreign ownership limits will improve competition and productivity, which in turn will support faster GDP growth.
The economy needs to grow by at least 6.5% annually over the next 22 years to realize the government’s goal of ending poverty by 2040, Ms. Qian added.
Mr. Villegas noted that this is doable for the Philippines, drawing confidence from the speedy rollout of infrastructure projects. He noted that big-ticket projects initiated by local governments could even boost GDP growth beyond the state’s 7-8% annual goal.
For financial markets, the economists expect the peso to end at P52.80 versus the dollar this year and to weaken to P54.20 in 2019. The bellwether Philippine Stock Exchange index is also projected to recover to the 8,100 level in 2019, up 12% from the expected 7,300 level this year.