THE WORLD BANK has slashed its gross domestic product (GDP) growth forecasts for the Philippines this year up to 2021 to below the government’s target, amid “intensified” risks from an escalating Sino-US trade war and “a slow recovery” of government spending in the wake of a three-and-a-half month delay in national budget enactment that weighed on first-half expansion.
The East Asia and Pacific Economic Update, titled “Weathering Growing Risks”, which the multilateral lender released on Thursday bared a Philippine GDP growth forecast of 5.8% this year against the already-downgraded 6.4% forecast it gave last June and the official 6-7% target for 2019.
The latest projection also compares to the country’s actual 6.2% last year.
The World Bank also gave 6.1% and 6.2% projections for 2020 and 2021, also down from 6.5% for both years penciled last June.
The Philippines’ 5.8% growth forecast this year is the same as the projection given for developing East Asia and the Pacific (EAP), though better than the 4.8% for “developing ASEAN”, a group that excludes Singapore and Brunei. The Philippines will outpace developing EAP and ASEAN next year and in 2021.
But the country’s growth projections also fall short of the government’s targets of 6.5-7.5% in 2020 and 7-8% in 2021-2022.
Inflation will be supportive at 2.9% this year, against the central bank’s 2.5% forecast, and three percent for 2020 and 2021 against a 2-4% official target range.
“Downside risks to growth have intensified,” the World Bank said of the Philippines in its report.
“The Philippines faces heightened external risks due to the slowdown in global growth and demand, and rising global protectionism, which weaken external demand for the country’s main exports,” it explained.
“Domestically, a slow recovery in the pace of public investment spending constitutes the main downward risks, as capacity constraints, procurement difficulties, and implementation bottlenecks continue to slow the pace of public spending.”
The country’s economy expanded by a disappointing 5.5% last semester, and Socioeconomic Planning Secretary Ernesto M. Pernia has said it will take a 6.4% growth — doable according to state economic managers — to hit the lower end of the government’s 6-7% goal for 2019.
In a press briefing on Thursday, Rong Qian, World Bank senior economist for the Philippines, noted that agencies were not able to start the procurement process right away after the P3.662-trillion 2019 national budget was finally enacted in mid-April.
“Another challenge is the absorptive capacity of the private sector,” Ms. Rong said.
“The budget delay caused some accumulation of projects and now that the projects have passed, they all go to the market at the same time…”
At the same time, “[f]iscal policy is expected to remain supportive of growth as public investment recovers, getting back on track to close the country’s infrastructure gap.”
“Monetary policy is also expected to be accommodative as inflation pressure diminishers,” Ms. Rong said.
The Bangko Sentral ng Pilipinas (BSP) has already cut benchmark interest rates by a total of 75 basis points (bps) in the face of fast-ebbing inflation rates. But this total leaves 100 bps left from last year’s cumulative 175 bps hike that the BSP fired off in the face of successive multi-year highs that reached a nine-year-high 6.7% in September and October that made the 2018 average settle at a decade-high 5.2%. Inflation averaged 2.8% in the nine months to September.
The BSP has also slashed banks’ reserve requirement ratio by a total of 300 bps, after last year’s total of 200 bps, as BSP Governor Benjamin E. Diokno moves to cut this ratio to single-digit level when he ends his term in mid-2023.
Ms. Rong cited growth drivers up to 2021 as public spending, especially on infrastructure, and a pickup in private investments after all tax reforms — especially one that will slash the corporate income tax gradually to 20% by 2029 from 30% currently — are enacted. Business has also been pressing the government to end uncertainty from a plan to overhaul fiscal incentives for investors in order to make them more time-bound and tied to clear benefits to the economy.
She also noted that poor competition among firms in the Philippines has resulted “poor service delivery and higher prices, particularly in key sectors such as telecommunications, transportation, logistics and power”.
“Markets in manufacturing, wholesale and retail, agriculture and transport that are usually open for competition appear to be highly concentrated in the Philippines, suggesting that market rules and regulations might be hindering competition.” — Beatrice M. Laforga