Barcelona-based economic analysis provider FocusEconomics has slightly cut its 2018 growth forecast for the Philippines to 6.6 percent due to widening budget and trade deficits as well as the potential impact of the global trade war.
“The large increases in government spending and fixed investment should keep growth elevated this year and next. However, the resulting ballooning of the fiscal and trade deficits will also make the country more vulnerable to economic shocks,” FocusEconomics said in an Aug. 21 report.
The budget deficit widened by 36 percent year-on-year to P279.4 billion at end-July as the jump in spending on public goods and services outpaced the increase in tax and nontax revenues, the latest government data showed.
The trade-in-goods deficit further widened to $19.1 billion during the first half as exports declined for the sixth consecutive month in June while imports growth remained robust.
Also, “major risks include a regional slowdown and financial market instability amid fears of a global trade war,” FocusEconomics added.
As such, FocusEconomics now expects the Philippines’ gross domestic product to grow by 6.6 percent this year, down from the previous forecast of 6.7 percent.
The GDP growth projection remained below the government’s targetof 7-8 percent.
In the first half, GDP expansion averaged 6.3 percent after high consumer prices, the six-month closure of top tourist destination Boracay island, as well as tighter mining and aquaculture regulations led to the slowest growth rate in three years—6 percent year-on-year, during the second quarter.
“Although the economy decelerated in the second quarter, growth nevertheless remained robust, supported by continued fiscal stimulus measures—notably a public infrastructure push, which bolstered the services and construction sectors,” FocusEconomics said.
“While the stimulus contributed to a surge in investment spending, it also caused a widening of the trade deficit as rising export growth was still outpaced by import growth. This was largely due to a surge in capital goods imports linked to the infrastructure plan,” it added.
“Furthermore, the manufacturing sector showed signs of a slowdown toward the beginning of the third quarter: the manufacturing Purchasing Managers’ Index fell in June and July, while output expectations for the year ahead, although still elevated, hit an all-time low,” according to FocusEconomics.
“Consumer dynamics remained positive throughout the second quarter, with retail sales growth staying on an upward trend despite an uptick in the unemployment rate,” it said.