Growth forecast for PH lowered

Think-tank Asean+3 Macroeconomic Research Office (Amro) has cut its 2017 and 2018 growth forecasts for the Philippines partly on the back of slower investment and consumption in the first half even as it flagged risks related to the government’s delivery of its ambitious infrastructure plan.

Meanwhile, the International Monetary Fund kept its 2017 growth forecast of 6.6 percent for the Philippines, with the country poised to grow the fastest in Asean-5.

“The Philippine economy is expected to grow by 6.6 percent this year before quickening to 6.8 percent in 2018 as public sector infrastructure spending gains pace while domestic consumption and exports remain buoyant. To support the infrastructure program and enhance growth potential, mobilizing sufficient revenue via tax reforms is essential,” Amro lead economist Sumio Ishikawa said in a statement yesterday.

In May, Amro’s projection was 6.8-percent expansion in the gross domestic product (GDP) this year and 7-percent growth for 2018.

Amro’s updated forecast for 2017 was still within the government’s 6.5-7.5 percent target, but the new 2018 projection was below the 7-8 percent target range for next year.

“After the boost from election-related spending in 2016, the pace of economic expansion moderated to 6.4 percent in the first half of 2017 as fixed investment decelerated,” Amro noted.

“Failure to accelerate infrastructure investments through the ‘Build, Build, Build’ program owing to, among others, absorptive capacity constraints of the government and private sector participants could dampen investment activity and undermine growth prospects. A delay in infrastructure projects execution also risks having the additional revenues from the comprehensive tax reform program being diverted to other expenditure items with little growth potential,” Amro said.

“On the other hand, as the infrastructure program gains traction, it may lead to a widening of the current account deficit in the medium term, which could in turn put strong depreciation pressures on the peso. Likewise, brisk fiscal spending adding to an already buoyant domestic demand, rapid credit growth, and rising inflation could give rise to overheating pressures in the near term, although this risk may diminish over the medium term as the economy’s productive capacity improves,” it added.

“Overall, the ‘Build, Build, Build’ program should be implemented with a view to boosting growth while keeping the current account and fiscal deficits at moderate levels,” according to Amro.

Under “Build, Build, Build,” the government will roll out 75 flagship, “game-changing” infrastructure projects, with about half targeted to be finished within President Duterte’s term, alongside plans to spend a total of up to P9 trillion on hard and modern infrastructure until 2022.

Separately, in its World Economic Outlook (WEO) October 2017 report released yesterday, the IMF also projected 6.7-percent gross domestic product (GDP) growth for the Philippines in 2018.

“We have retained the [2017] forecast as we see continued robust domestic demand driven by investment and consumption, and fiscal policy is supportive of growth,” IMF resident representative in the Philippines Yongzheng Yang said in an email to reporters. —BEN O. DE VERA