ADB cuts 2016 inflation forecast for PH

The Asian Development Bank (ADB) has kept its economic growth forecast for the Philippines at 6 percent this year but slashed its inflation forecast to 1.8 percent or below the government’s target range due to the muted effect of El Niño on food prices.

A supplement to the ADB’s Asian Development Outlook 2016 (ADO 2016) report last March released Monday showed that the Manila-based multilateral lender maintained its 2016 gross domestic product (GDP) growth projection of 6 percent as well as 2017 forecast of 6.1 percent for the Philippines.

The Duterte government this month cut to a “conservative” 6-7 percent range from 6.8-7.8 percent previously its 2016 GDP growth target while the new administration adjusts. The growth target for 2017, meanwhile, was set at 6.5-7.5 percent.

In the ADO 2016 supplement titled “Asia’s Growth Prospects Undimmed by Brexit Vote,” the ADB attributed the better-than-expected 6.9-percent growth posted in the first quarter to election-related spending ahead of the national polls last May.

“Pre-election spending helped boost investment, household consumption, and government expenditure. Strong growth in industry and services also fueled this impressive economic performance. Robust domestic consumption catalyzed construction and manufacturing. Private construction continued to grow, while public infrastructure spending strongly rebounded, rising by 39.9 percent in the first quarter,” the ADB noted.

But for the rest of the year, “growth is expected to slow… as the effect of the pre-election spending wanes and global economic uncertainty persists,” the ADB said.

Also, the ADB noted of the slower, 3-percent growth in remittances from Filipinos overseas as of end-April from 8.6 percent a year ago.

The ADB’s 2016 inflation outlook for the Philippines, meanwhile, was slashed to 1.8 percent from 2.3 percent previously, or below the government’s 2-4 percent target. Headline inflation averaged 1.3 percent during the first half, the latest government data showed.

“The adjustment is in line with a lower-than-expected result in the first five months as the impact of El Niño on food prices was less severe than anticipated. Rice imports augmented domestic supplies, helping to ease price pressures,” the ADB explained.

For 2017, the inflation forecast was slightly lowered to 2.7 percent from 2.8 percent previously “in anticipation of higher gains in oil prices,” the ADB said.

As a whole, “growth in Asia and the Pacific’s developing economies for 2016 and 2017 will remain solid as firm performances from South Asia, East Asia and Southeast Asia help offset softness from the US economy, and near-term market shocks from the Brexit vote,” the ADB said in a statement.

In the ADO 2016 supplement, the ADB slightly downgraded to 5.6 percent its 2016 growth forecast for developing Asia from 5.7 percent previously.

“Although the Brexit vote has affected developing Asia’s currency and stock markets, its impact on the real economy in the short term is expected to be small. However, in light of the tepid growth prospects in the major industrial economies, policymakers should remain vigilant and be prepared to respond to external shocks to ensure growth in the region remains robust,” ADB chief economist Shang-Jin Wei said.

In the ADO supplement, the ADB said that “if Brexit-induced uncertainty on global financial markets and economies turns out to persist and grow, Brexit’s impact on Asia could be greater through the channels of trade, investment, capital flows, exchange rates, and consumer and business confidence.”

“Brexit is a timely reminder of the need for developing Asia to continue its efforts to strengthen resilience against external shocks through sound macroeconomic management and structural reform,” the ADB added.