World Bank forecast for PH economy dims, falls to 5.8% GDP growth

The World Bank is tempering its growth forecast for the Philippines to 5.8 percent in 2019, below the government target and largely because of the combined effects of global trade worries, slow government spending caused by the delayed national budget and low absorptive capacity.

At a press briefing, World Bank senior economist for the Philippines Rong Qian said the WB’s 2019 gross domestic product (GDP) growth forecast for the country was lower than the previous 6.4 percent because of “the impact of the recent global development” on the Philippine economy and “the sharp slowdown in investment growth in the first half” of 2019.

The WB estimated that the Philippines’ GDP growth would likely fall below government targets during the next three years—2019’s will be lower than the 6-7 percent goal; the projected 6.1 percent in 2020 below the 6.5-7.5 percent target; and the forecast for 2021 of 6.2 percent also lower than the 7-8 percent target range.

Qian noted that the 5.5-percent GDP growth posted during the first semester was the slowest in eight years, pulled down by “a rapid deceleration in investment growth.”

The government underspent at least P1 billion on public goods and services every month from January to April this year because it was operating on a reenacted budget in the early part of 2019. Squabbling in Congress over kickbacks in pork barrel funds had led to the delay.

The P3.7-trillion budget was signed by Duterte only in mid-April.

An election ban on infrastructure projects also hurt spending, Qian said.

“Investment dragged down growth in the second quarter of 2019,” said Qian.

“Private investment activities also slowed given weaker external demand” and the continuing trade tit-for-tat between the United States and China, Qian said. Investors also preferred to wait for the final shape of ongoing tax reform efforts, he said.

Economies elsewhere were also suffering from a slowdown “with increasing risks of recession,” said Qian, citing the manufacturing slump in the US, Europe and China.

Qian said while the government is playing catch-up with spending, “there are still implementation challenges that might prevent a full catch-up.”

Qian told reporters that agencies and local government units (LGUs) were unable to immediately start procurement—a long process—right after budget approval due to a problem with absorptive capacity.

The two major infrastructure agencies—the Departments of Public Works and Highways (DPWH) and of Transportation—were observed spending the same levels of their increasing budgets, which meant that while they were disbursing more in terms of project cost, it was taking them time to use their entire budgets, Qian added.

Also, the private sector has been having difficulty catching up as the accumulation of projects could not be all served by the construction industry given limited capacity and human resources, she said.

For Qian, “resuming public investment is needed to regain growth momentum in the short run, while fast-tracking implementation of game-changing reforms would accelerate inclusive growth.”

Qian said it was important for the 2020 national budget to be approved on time to sustain the momentum of government investments.

She added that the sooner the Philippine Congress present the final shape of corporate and fiscal incentives reforms, the better.

These, she said, “would boost private investment.”/TSB