MANILA, Philippines — The Asian Development Bank (ADB) has cut to 6.2 percent its 2019 growth forecast for the Philippines mainly due to government underspending at the start of the year that dragged first-quarter economic expansion to a four-year low.
The Manila-based multilateral lender’s Asian Development Outlook Supplement report released Thursday showed a lower gross domestic product (GDP) growth projection for this year from 6.4 percent previously, even as it kept the 2020 forecast at a now faster 6.4 percent.
The ADB’s 2019 GDP growth forecast for the Philippines matched the actual 6.2 percent expansion posted last year, although it was the slowest rate in three years.
“Growth moderated in the Philippines from 6.3 percent year-on-year in the fourth quarter of 2018 to 5.6 percent in the first quarter of this year as the delayed passage of the national budget held back government spending. Public construction contracted by 8.6 percent while growth in government consumption eased from 12.6 percent year-on-year in the fourth quarter of 2018 to 7.4 percent in the first quarter of 2019,” the ADB noted.
“Growth in exports of goods and services also slowed as a result of lackluster global trade and economic activity and the downturn in the electronics cycle. These effects were partly offset by higher household consumption and private investment,” it added.
To recall, President Duterte signed the P3.7 trillion 2019 national budget only in mid-April as the two houses of Congress earlier squabbled over “pork” funds.
As a result, government operated using reenacted 2018 appropriations during the first four months and underspent about P1 billion a day on public goods and services.
First-quarter GDP growth hence settled below the government’s downgraded 6-7 percent full-year target range.
On the flip side, the ADB expects inflation to ease to 3 percent this year on the back of “lower food prices”—a slower pace than its earlier 2019 projection of 3.8 percent and below the 10-year high 5.2 percent rate of increase in prices of basic commodities recorded in 2018.
“Inflation in the Philippines slowed to 2.7 percent in June, averaging 3.4 percent in the first half. Rice prices have declined on improved supply since the lifting of quantitative restrictions on rice imports in February,” it said.
However, the ADB sees headline inflation next year at a higher 3.5 percent, maintaining its earlier forecast due to “an expected pickup in global commodity prices.”
The ADB’s inflation forecasts for 2019 and 2020 were still within the government target band of 2-4 percent. /muf