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Gov’t growth forecasts seen ‘too optimistic’

By: - Reporter / @bendeveraINQ
/ 05:26 AM November 02, 2018

Keeping the 7-8 percent growth forecast for next year was deemed “too optimistic” by London-based Capital Economics amid domestic and external developments posing risks to gross domestic product (GDP) expansion.

“The decision by the government of the Philippines to lower its GDP forecasts for this year, from 7-8 percent to 6.5-6.9 percent, was merely a case of bowing to the inevitable, given the poor performance of the economy in the first half of the year,” Capital Economics senior Asia economist Gareth Leather said in an Oct. 19 report titled “Philippines won’t hit growth target.”

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Economic managers belonging to the interagency Development Budget Coordination Committee blamed the lower 2018 growth target to a confluence of external factors, including the US-China trade war, higher global oil prices and elevated interest rates.

While GDP growth averaged 6.3 percent in the first half—below the new target range—the economic team remained optimistic that the goal could still be achieved “with a lot of prayers,” alongside strategies they unveiled to boost economic expansion in the near term.

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As for the 2019 growth target that the government maintained, Capital Economics said: “Given the headwinds facing the economy in terms of high inflation, rising interest rates, weaker global demand and political uncertainty, this forecast appears way too optimistic.”

“We are forecasting growth to slow to 6 percent in 2019, from 6.3 percent this year,” it added.

Capital Economics also flagged risks from a wider budget deficit cap, which the government kept at 3.2 percent of GDP for 2019, partly to finance the ambitious “Build, Build, Build” infrastructure program.

“If economic growth [and government revenues] come in significantly below target, the deficit would widen markedly. Government debt is currently just over 40 percent of GDP—which is low by its own historical standards and relative to other Asian countries. As a result, a fiscal crisis is not imminent. But if the deficit continues to widen, questions may start to be raised about the government’s commitment to a responsible fiscal policy,” according to Capital Economics.

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TAGS: Gareth Leather, gross domestic product (GDP), London-based Capital Economics
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