Economy seen sustaining growth above 6%

The Philippine economy will continue to grow above 6 percent this year and next, but the pace of growth won’t likely be as great as in previous year as internal and external headwinds remain, New York-based think tank Global Source said.

In a recent research note written by economists Romeo Bernardo and Marie Christine Tang, Philippine gross domestic product (GDP) growth was projected to soften to 6.2 percent this year from 6.3 percent in 2017.

Global Source has trimmed its 2019 GDP growth forecast from 6.4 percent previously. Consensus forecasts likewise softened to 6.4 percent for this year and next from 6.7 percent and 6.6 percent, respectively.

Locally, Global Source noted that upsides to growth included a speedier ramp up of Chinese presence in the country via trade, investments and tourism alongside a proper rice tariff law that could reduce rice prices.

Global Source said the main local downside, on the other hand, would be lingering uncertainty related to corporate tax reform.

The country’s mid-term election season is coming, which will last through May 2019. During this time, however, Global Source noted that work on the executive’s tax reform proposals, particularly the unpopular package 2 dealing with corporate investment incentives, is widely expected to be put on hold, keeping investors in suspense about the future corporate tax regime.

“In the meantime, any boost to domestic demand from election spending may simply translate into higher imports, especially with all the construction works spurred by public spending adding to the economy’s chokepoints in the interim. As well, second-round impacts from all the supply shocks this year are still working their way through the economy and expected to keep inflation outside monetary authorities’ target band through mid-2019,” the think tank said.

On the external front, Global Source said upsides to growth would include better export performance and improved financial market sentiments along with more gradual interest rate increases to maintain global investment appetites.

Potential downside risks are seen to come from another unexpected surge in oil prices, escalating trade war that dampens global growth and investments and geopolitical factors.