The World Bank and the Asean+3 Macroeconomic Research Office (Amro) have cut their 2018 gross domestic product (GDP) growth forecasts for the Philippines due to slower-than-expected first-half expansion coupled with high inflation.
Amro slashed its growth projection to 6.5 percent from 6.8 percent previously.
“Inflation is higher than previously expected, and high inflation continues to erode the purchasing power of household and consumer confidence,” the regional macroeconomic surveillance organization said in an e-mail to the Inquirer yesterday.
Also yesterday, World Bank senior economist for the Philippines Rong Qian said the multilateral lender had downgraded its Philippine growth forecast to 6.5 percent from 6.7 percent previously.
In a press conference, Qian said this was due to the slower first-half growth which was blamed on weak electronics exports as well as lower agriculture and fisheries output.
Electronics accounted for the bulk of the country’s merchandise exports, so it did not help when the sector suffered from the cyclical slowdown in global demand, she said.
The elevated inflation environment also slowed first-half GDP growth, which averaged 6.3 percent, below the government’s full-year target range of 7-8 percent, she added.
Headline inflation in August hit 6.4 percent, the highest in nine years, bringing the average rate of increase in the prices of basic goods during the first eight months to 4.8 percent, or way above the government’s full-year target range of 2 to 4 percent.
“Private consumption has already shown some weakness and GDP growth decelerated to 6 percent in the second quarter. Moreover, consumer confidence contracted in the third quarter of 2018 for the first time since the third quarter of 2016. Thus, as private consumption takes up around 70 percent of GDP, it led to the revision. The revised GDP growth rate still reflects the robust growth of the Philippine economy,” Amro chief economist Hoe Ee Khor said.
Qian said that even with the downgraded forecast, Philippine economic growth would remain “very strong.”
However, the World Bank sees high inflation posing risk not only to economic growth but also to the government’s plan to reduce poverty incidence rate, Qian said. “Inflation can slow down poverty reduction,” she said.
Birgit Hansl, World Bank lead economist for Brunei, Malaysia, Philippines and Thailand, said that based on their projections for the next two years “we see inflation still rising “such that the Bangko Sentral ng Pilipinas was expected to continue tightening monetary policy.
In the near term, “we see the peaking of inflation and a slow retreat,” Hansl said.
The World Bank nonetheless expects faster GDP growth in the second half as well as in early next year, given the higher government spending on public goods and services, mainly under the ambitious “Build, Build, Build” infrastructure program.
While high inflation remained a downside risk in the second half, Hansl noted that the Philippines “seemed resilient to inflation.”
Also, Hansl said the impact of high consumer prices on the economy would be balanced out by more public investments coming on stream and the expected pre-election spending toward the end of this year ahead of the 2019 midterm polls.
For 2019 and 2020, the World Bank projected the Philippine economy to grow by 6.7 percent and 6.6 percent, respectively.
Earlier, the Manila-Based Asian Development Bank cut its 2018 growth projection for the Philippines to 6.4 percent from 6.8 percent, while the International Monetary Fund reduced its forecast to 6.5 percent from 6.7 percent.