Pernia concedes 2019 growth target unlikely met

MANILA, Philippines — The Philippines’ economic growth likely fell to a four-year low last year and beneath the government’s narrower target range of 6-6.5 percent, the country’s chief economist conceded on Wednesday.

Across 20 economists’ forecasts compiled by the Inquirer this week, the majority projected expansion in the fourth quarter to be faster than the third quarter’s revised 6-percent growth rate, but the average full-year rate still falling short of goal.

A day before the government reports on the country’s fourth-quarter and full-year 2019 gross domestic product performance, the Philippine Statistics Authority (PSA) on Wednesday said the third-quarter GDP growth figure was downgraded from the 6.2 percent announced in November as the per industry growth rates of other services, construction, as well as transport, storage and communication had been revised downward.

As such, end-September GDP growth averaged 5.7 percent, entailing at least 6.9-percent expansion during the fourth quarter to reach 6 percent for the entire year.

However, Socioeconomic Planning Secretary Ernesto M. Pernia told the Inquirer that 6.9-percent GDP growth in the October to December 2019 quarter was “unlikely.”

As early as Jan. 2, Pernia told the Inquirer that fourth-quarter growth was projected to be at least 6.6 percent.

As such, Pernia, who heads the state planning agency National Economic and Development Authority (Neda), on Wednesday replied to the Inquirer when asked if the 2019 target was no longer doable: “Looks like it.”

Economic growth lagged in the first half of last year no thanks to government underspending on public goods and services as a result of the delayed approval of the P3.7-trillion 2019 national budget.

The government underspent P1 billion a day between January and April last year as it operated using reenacted 2018 funds when Congress failed to pass the budget on time due to squabbles over alleged “pork” funds.

President Duterte signed last year’s budget only in mid-April.

To reverse underspending at the start of last year, the economic team undertook a “bold” spending catch-up plan, under which major infrastructure agencies, such as the departments of Public Works and Highways (DPWH) and of Transportation (DOTr), fast-tracked implementation of P803-billion worth of projects for the rest of 2019.

In a note to clients on Wednesday, ING Bank Manila senior economist Nicholas Antonio T. Mapa blamed the lingering effect of the interest rate hikes in 2018 amid high inflation to last year’s capital formation.

“The ill effects of the BSP’s [Bangko Sentral ng Pilipinas] 2018 rate hike cycle continue to feed through the economy with the latest revision to third-quarter GDP showing a more substantial pullback in investment activity. Capital formation was revised lower by P3.95 billion, reflecting a substantial revision to private construction and a drop off in durable equipment purchases. In terms of contribution, capital formation sapped 0.7 percentage point (previously minus 0.55 ppt) from overall growth in third quarter while the trade gap was actually upgraded with exports moved up and imports downgraded,” Mapa said.

In 2018, the BSP hiked the policy rate by a total of 175 basis points to 4.75 percent as inflation hit a 10-year high of 5.2 percent amid higher excise taxes slapped on consumption under the Tax Reform for Acceleration and Inclusion (TRAIN) Act, skyrocketing global oil prices, and domestic food supply bottlenecks, especially of rice.

Pernia had said elevated inflation was the “spoiler” to 2018 economic growth, just as late budget approval hindered the Philippine economy to grow to its potential in 2019.

In a report also on Wednesday, the regional macroeconomic surveillance organization Asean+3 Macroeconomic and Research Office (Amro) remained optimistic and kept its 2019 GDP growth forecast for the Philippines at 6 percent. For 2020, Amro sees the Philippine economy growing by a faster 6.4 percent, although still below the government’s 6.5-7.5 percent target range for this year.

Among the 20 economists polled by the Inquirer, only seven projected full-year 2019 growth to reach 6 percent: Mapa, BDO Unibank Inc.’s Jonathan L. Ravelas, IHS Markit’s Rajiv Biswas, Maybank Investment Bank’s Suhaimi Bin Ilias, Philippine National Bank’s Francisco G. Trinidad Jr., Security Bank’s Robert Dan J. Roces, and Rizal Commercial Banking Corp.’s Michael L. Ricafort.

Eleven other economists expect 2019 GDP expansion below 6 percent, with six of them who forecasted 5.9 percent, as follows: Ateneo de Manila University’s Alvin P. Ang, ATR Asset Management’s Ivan Ante, Bank of the Philippine Islands’ Emilio S. Neri Jr., Barclays’ Angela Hsieh, Capital Economics’ Alex Holmes, and Union Bank’s Ruben Carlo O. Asuncion.

Five economists—Citibank’s Johanna Chua/Nalin Chutchotitham, HSBC’s Noelan Arbis, Moody’s Analytics’ Katrina Ell, Oxford Economics’ Thatchinamoorthy Krshnan, and Sun Life Financial’s Patrick M. Ella—shared the same forecast of 5.8-percent growth in 2019, matching the growth rate in 2015.

For the fourth-quarter alone, DBS Bank Ltd.’s Masyita Crystallin projected 6.5-percent growth, while ANZ Research’s Mustafa Arif had a forecast of 5.9 percent year-on-year.