Spanish think tank cuts PH growth forecast, cites external and inflation risks | Inquirer Business
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Spanish think tank cuts PH growth forecast, cites external and inflation risks

By: - Reporter / @bendeveraINQ
/ 05:05 AM September 24, 2018

Barcelona-based economic analysis provider FocusEconomics further cut its 2018 growth forecast for the Philippines to 6.5 percent mainly due to risks from wider current account and budget deficits and high inflation.

From its projection in August of a 6.6-percent gross domestic product (GDP) growth for 2018, FocusEconomics slightly downgraded its outlook for the Philippines in a Sept. 18 report as “rising fiscal and current account deficits make the country increasingly vulnerable to external shocks, such as an escalation of US-China trade tensions.”

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In a subsequent Sept. 19 report covering the entire Asean region, FocusEconomics said despite the lower growth forecast, “among the major economies in the region, Vietnam and the Philippines should record the fastest growth” this year.

Across Asean, “an escalation of the trade war between the United States and China is the key downside risk to growth, given the importance of both countries as export markets to the region,” FocusEconomics said.

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“In addition, the likely fallout, coupled with the ongoing tightening cycle in the United States, could put pressure on the currencies of countries with weaker external positions, such as Indonesia and the Philippines,” FocusEconomics added.

The peso fell to its weakest level in nearly 13 years this month mainly due to concerns on the current account deficit.

As of end-June, the current account deficit widened to $3.1 billion (equivalent to 1.9 percent of GDP) from $133 million (or only 0.1 percent of GDP) a year ago, mostly on wider trade-in-goods deficit as imports continued to increase while merchandise exports declined.

The government had also programmed a budget deficit cap equivalent to 3 percent of GDP for 2018 with the goal of ramping up spending on public goods and services to support economic growth.

FocusEconomics nonetheless said “the large fiscal stimulus should keep growth elevated this year and next, notably through a surge in fixed investment,” partly referring to the massive “Build, Build, Build” infrastructure program.

The flip side, it noted, was the surge in capital goods imports that forced open the trade deficit in July.

“Moreover, tighter monetary policy in response to surging inflation could clip private consumption growth,” FocusEconomics added, noting that “consumer confidence for the third quarter turned negative and inflation surprised on the upside in August, casting doubts on whether robust consumer spending will be maintained in the months ahead.”

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The Bangko Sentral ng Pilipinas’ policy-setting Monetary Board is expected to hike the key interest rate by another 50 basis points (bps) on Thursday amid elevated consumer prices.

In August, headline inflation surged 6.4 percent year-on-year, a more than nine-year high, due to higher prices of food, oil and “sin” products such as cigarettes and alcoholic drinks.

The BSP so far this year already hiked the policy rate by 100 bps as inflation averaged 4.8 percent at end-August, above the government’s 2-4 percent target range.

Further possible inflationary pressure will come from the onslaught of Typhoon ‘Ompong’ (international name: Mangkhut) this month, “which will likely fan price pressures in the months ahead and cause agricultural losses running into billions of pesos,” according to FocusEconomics.

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TAGS: Business, FocusEconomics, Inflation
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