Oxford Economics: PH growth may dip below 6% for entire 2019

MANILA, Philippines — The slower-than-expected expansion of the Philippine economy in the first quarter “indicates that GDP growth will likely dip below 6 percent for 2019 as a whole,” UK-based Oxford Economics recently said.

This, even if it expects the Philippine economy “to gain some traction in the coming quarters with the budget impasse behind us and expansionary macro policies lending support.”

“The risks, however, are to the downside following renewed risks of escalation in US-China trade tension,” Oxford Economics’ Thatchinamoorthy Krshnan said in a May 9 report.

According to Oxford Economics, challenges in the global backdrop could keep exports under pressure.

“While we expect the recent flare up in US-China trade tensions to subside, the probability of renewed escalation between the two countries has risen substantially,” it added.

London-based Capital Economics seemed to agree.

Capital Economics said the disappointing first-quarter growth is not the end of the woes ahead of the Philippine economy as it is seen to take an indirect hit from the ongoing trade tensions between the US and China.

“The first quarter’s slump in GDP [gross domestic product] growth should be temporary, as it was mainly driven by budget delays. But hopes for a sustained rebound are likely to be disappointed. A tough external environment and the lagged effects of monetary tightening mean growth is likely to struggle to beat 6 percent this year,” London-based Capital Economics Asia economist Alex Holmes said in a May 9 report.

The GDP grew 5.6 percent in the first quarter, the slowest in four years, mainly as the government underspent at the start of the year due to a budget impasse in Congress as lawmakers squabbled over illegal “pork” insertions.

Capital Economics noted that while the delayed implementation of the 2019 national budget was the biggest drag to growth during the January to March period, “investment growth also slowed and both import and export growth dropped back sharply.”

“In contrast, growth in household consumption rose to 6.3 percent year-on-year, from 5.3 percent in the fourth quarter [of 2018]. Consumers are likely to have benefited from a big slowdown in inflation,” Capital Economics added.

For Capital Economics, “growth should bounce back slightly in the second quarter.”

“This is likely to mainly be driven by a rebound in government spending. The 2019 budget was finally passed in mid-April meaning growth in government spending is set to return to the double figures. Meanwhile, continued falls in inflation should help to support strong consumption growth. Inflation fell to 3 percent year-on-year in April, from its recent peak of 6.8 percent last October. The headline rate is likely to moderate further on the back of lower food and energy price inflation, touching 1 percent in the third quarter,” it explained.

But Capital Economics warned that “a sustained rebound in growth is unlikely,” citing that the impact of last year’s total of 175-basis points interest rate hikes amid high inflation will weigh on economic expansion and investment as its full impact will still be felt throughout this year.

“What’s more, weak export growth should continue to drag on growth. We expect global growth to weaken further over the coming quarters, which will weigh on external demand. The likely intensification of the US-China trade war would be an additional headwind,” it added.

As such, Capital Economics kept its 2019 growth forecast of 6 percent, at the lowest end of the government’s downgraded 6-7 percent full-year target.