World Bank cuts PH growth forecast for 2019

The World Bank sees Philippine economic growth falling below the government’s target this year due to high consumer prices as well as next year after Congress failed to pass the proposed 2019 national budget on time.

In a statement Friday, the Washington-based multilateral lender said it cut its gross domestic product (GDP) growth forecast for the Philippines to 6.4 percent in 2018 from 6.5 percent previously, also lower than the government’s already downgraded 6.5-6.9 percent target range.

It also slashed its 2019 growth projection to 6.5 percent from the earlier 6.7 percent, likewise below the government’s yearly goal of 7-8 percent starting next year until 2022.

“While persistent high inflation may temper private consumption growth in the fourth quarter of 2018, a moderation in inflation in following quarters is expected to boost consumer confidence and raise private consumption in 2019,” the World Bank said.

Headline inflation jumped to more than nine-year highs in recent months due to a mix of higher excise taxes slapped on consumption implemented at the start of the year, skyrocketing global oil prices and food supply constraints, especially of rice.

The rate of increase in prices of basic commodities averaged 5.2 percent in the first 11 months, above the government’s target range of 2-4 percent.

Elevated prices tempered consumer spending and, in turn, cut GDP growth to three-year lows during the second and third quarters. GDP expansion averaged 6.3 percent in the first nine months.

High inflation also led to the Bangko Sentral ng Pilipinas (BSP) raising the key interest rate by a total of 175 basis points to 4.75 percent this year, making it more expensive to borrow to finance consumer purchases or business expansion.

But these recent interest rate increases coupled with administrative orders issued by President Duterte that eased food importation, alongside the expected removal of the rice import quota and eventual tariffication of the Filipino staple food are expected to bring back inflation within government target in 2019.

For next year, “investment growth may be tempered in the first half of 2019 due to the possible reenactment of the first-quarter 2019 budget following a delay in the budget approval process.”

The P3.757-trillion cash-based budget proposal for 2019 stalled in both houses of Congress amid allegations of “insertions” and kickbacks among lawmakers, who also implicated Budget Secretary Benjamin E. Diokno for alleged conflict of interest with certain infrastructure projects.

The World Bank also cited as a risk to growth next year expectations of global trade remaining weak, hence dampening export sales of Philippine-made goods.

The lender nonetheless expects the upcoming midterm elections in May next year to be growth booster, as it would “strengthen consumption by temporarily raising employment and disposable incomes in early 2019.”

Despite the downgraded 2018 and 2019 growth forecasts, the World Bank said the Philippines was still “one of the fast-growing economies in the East Asia and the Pacific region.”

For World Bank senior economist Rong Qian, “a strong, consistent delivery of the infrastructure investment agenda while sustaining improvements in health, education and social protection will be key to maintaining the robust and inclusive growth outlook of the Philippines.”