WB maintains Philippine growth forecast

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World Bank

By Melissa Luz T. Lopez, Senior Reporter

THE World Bank sees stronger growth during the second half of 2018 on the back of stronger public spending, with the Philippine economy expected to sustain its pace despite global headwinds.

The multilateral lender kept its 6.7% growth estimate for the Philippine economy this year and in 2019, matching the pace logged last year. The robust expansion is seen maintained “despite rising global uncertainty,” the World Bank said in a statement on Friday.

Stronger government spending is expected to keep the momentum upbeat, albeit slower than the 7-8% growth goal set by the Duterte administration.

“Given recent fiscal trends, government consumption growth was revised upwards, while private consumption growth is expected to expand at 5.9% in 2018 and 6.2% in 2019,” the statement read.

The adjustments compare to the World Bank forecasts published in April.

“Investment growth was slightly upgraded due to higher public capital outlays, including increased infrastructure spending,” the World Bank said. “Overall, it is anticipated that real GDP (gross domestic product) growth will increase towards the end of 2018 and into the first half of 2019 with higher election-related public spending.”

The Philippine economy grew by 6.8% during the first quarter fueled by a surge in government spending as well as capital formation, according to the Philippine Statistics Authority. In particular, public construction grew by 25.1% against a 6.8% climb in private sector activity.

Infrastructure spending surged by 42.4% as of end-May and accounts for more than a third of its full-year program, according to the Department of Budget and Management. Under the 2019 cash-based budget, infrastructure allotments are set at P874.8 billion.

“The government’s ability to carry out its investment spending agenda will determine if the Philippines can achieve its growth target of 6.5-7.5% over the medium term,” Birgit Hansl, World Bank Lead Economist for the Philippines, was quoted as saying.

“In addition, higher private investment levels will be critical to sustain the economy’s growth momentum as capacity constraints become more binding.”

Consumption is expected to keep driving economic activity as exports are seen to slow over the coming years amid easing global growth.

The World Bank expects a deceleration in global output at a time of higher interest rates, rising commodity prices and tempering global demand. Global growth is expected to keep steady at 3.1% this year, but will moderate to 3% by 2019 and 2.9% by 2020.

Uncertainties on trade as well as possible policy shocks in major economies also pose risks to the outlook, especially given an escalating tariff war between the United States and China.

The Bangko Sentral ng Pilipinas said they expect minimal first-round effects of the trade war, but warned that the Philippines could reel from its impact should it pull down growth in the world’ biggest economies.