Economy seen to hit speed bumps in 2019

MANILA, Philippines — The Philippine economy may hit some speed bumps this year with the first quarter gross domestic product (GDP) growth falling below six percent for the first time in more than three years, according to Dutch financial giant ING Bank.

ING Bank senior economist Nicholas Mapa said growth is expected to hit a speed bump in the next two quarters with still-elevated levels of inflation and higher borrowing expected to sap both consumption and investment momentum.

ING sees Philippine economic growth slowing down to 5.8 percent in the first quarter before picking up to 6.1 percent in the second and third quarters, and 6.2 percent in the fourth quarter.

“The Philippine economy continues to post respectable growth despite the recent flare-up in inflation and borrowing costs in 2018. Speed bumps are directly ahead though with economic growth expected to slip slightly below six percent as higher borrowing costs and still above-target inflation sap consumption and investment momentum,” he said.

The last time GDP growth fell below six percent was at 5.8 percent in the second quarter of 2015.

Mapa said government spending is expected to struggle in the first half with an election ban preventing fresh projects and a delay in passing the budget likely to halt last year’s strong growth.

 “Meanwhile, government spending may decelerate sharply as the administration is running on a re-enacted budget following Congress’s failure to pass the 2019 spending plan,” he said.

Economic managers lowered the Philippines GDP growth forecast for 2018 at 6.5 to 6.9 percent from seven to eight percent. The GDP expanded 6.3 percent in the first nine months of last year after slowing down to 6.1 percent in the third quarter from 6.2 percent in the second quarter.

On the other hand, inflation accelerated to 5.2 percent in 2018 from 2.9 percent in 2017 due to higher oil and food prices as well as the weak peso. This was way above the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).

Inflation eased to 5.1 percent in December after peaking at a near-decade high of 6.7 percent in September and October.

This allowed the BSP to take a breather from its tightening cycle in December after lifting rates by 175 basis points in five straight rate-setting meetings from May to November to prevent inflation from spiraling out of control.

Mapa said inflation is seen easing back to the BSP’s two to four percent target range at 3.9 percent in the first quarter of the year.