The recent high inflation episode will ease economic growth this year and the next, given higher interest rates that will likely temper private consumption, according to Dutch financial giant ING.
In a briefing, ING Bank Manila senior economist Nicholas Antonio T. Mapa said they expected the gross domestic product (GDP) growth in the fourth quarter to slow to 5.9 percent and bring the full-year average to 6.2 percent.
Mapa’s full-year GDP growth projection was below the government’s downgraded target range of 6.5-6.9 percent.
For 2019, Mapa’s forecast was GDP growth of 6.1 percent, which would be slowest annual economic expansion since 2015 as well as beneath the 7-8 percent goal for next year.
“High [interest] rates and growth don’t mix,” Mapa noted, as the Bangko Sentral ng Pilipinas’ (BSP) Monetary Board already hiked the key policy rate by a total of 175 basis points to 4.75 percent so far this year amid elevated inflation.
The rate of increase in prices of basic commodities hit an over nine-year high of 6.7 percent year-on-year in September and October, averaging 5.2 percent as of November, above the government’s 2-4 percent target.
But with headline inflation easing of late, with a month-on-month deflation of 0.3 percent posted in November that slowed the year-on-year rate to 6 percent, Mapa sees a pause in interest rate hikes by the BSP up until the fourth quarter of 2019.
Mapa also sees a likely repeat of the third-quarter GDP slowdown in the fourth quarter as household consumption may again slow despite the high-demand Christmas holiday season given high inflation and borrowing costs.
To recall, amid high prices, many consumers cut down on purchases of food, among other essential purchases, hence tempering a major booster of the Philippine economy and slowing overall economic growth to a three-year low of 6.1 percent year-on-year during the third quarter.
Mapa nonetheless noted that the Philippine economy was moving into an investment-led growth story rather than private consumption-led one.