WB cuts PH growth forecast for ’19 to 6.4%

The World Bank has downgraded its 2019 growth forecast for the Philippines to 6.4 percent as the government operated on a reenacted budget in the first quarter coupled with a looming prolonged dry spell due to El Niño.

In a press conference Monday, World Bank senior economist Rong Qian said the updated 2019 forecast—lower than the projection of 6.5 percent in December last year—was partly due to increasing domestic risks, including the impact of the delay in approval of the P3.757-trillion 2019 national budget.

“Under a reenacted budget, no new programs and projects will receive funding, as budget allocations are based on the appropriations made in the previous year’s budget. As a result, the limited public spending may negatively impact the Philippines’ growth prospects for 2019,” Qian noted.

Amid the budget deadlock in Congress, the Cabinet-level Development Budget Coordination Committee last month slashed its gross domestic product growth target for the year to 6-7 percent from 7-8 percent previously.

Also, El Niño was expected to negatively impact on agriculture production and could make food more expensive, Qian said.

“An intensified El Niño may lead to food supply constraints, affecting the poor and vulnerable the most as they are spending a relatively larger portion of their income in food,” she said.

But Qian said that easing headline inflation of late was expected to boost private consumption amid still “robust domestic demand.”

Despite these domestic risks, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand Mara K. Warwick said in a statement that “the country’s growth outlook remains positive.”

“Higher private consumption due to lower inflation, steady growth of remittances, and election spending will fuel growth this year. Growth in public investment will be tempered in the first half of 2019 but is expected to recover in the second half of the year,” Warwick said, noting that “growth of the Philippine economy has historically been driven by consumption, with households contributing more than two-thirds of aggregate expenditures.”

For 2020, the Washington-based multilateral lender also cut its growth forecast for the Philippines to 6.5 percent from 6.6 percent previously, as Qian said external risks remained high given that global growth was expected to moderate in the next two to three years.

Also, the US-China trade dispute creating uncertainty in the global market was expected to impact on Philippine exports, hence would keep declining this year and in the next couple of years, she said.

To offset these risks, Qian said that “in the short term, prudent fiscal and monetary policies are important to preserve consumer and business confidence while in the long term, addressing challenges of human capital development is critical for achieving inclusive growth.”

“As financing conditions continue to tighten globally, the government must continue to exercise prudent fiscal management to maintain long-term fiscal sustainability. In addition to raising new revenue to meet spending needs, public investment management needs to be improved to help maximize the efficiency of infrastructure investment in the medium term,” she said.

“Moreover, preserving business confidence requires policy clarity. The country needs to effectively build consensus among government agencies on the opportunity, nature and timing of reforms to lower governance risks and temper market uncertainties,” she added.