ADB downgrades Philippine growth forecast this year to 6%

MANILA, Philippines — Philippine economic growth this year is expected to be slower than earlier forecasts because of the weaker global economy and domestic investment, but may recover next year as consumption holds up and supportive fiscal and monetary policies are implemented, according to the Asian Development Bank (ADB). 

In an update of its Asian Development Outlook (ADO) 2019, the Manila-based multilateral bank revised downward its 2019 growth forecast for the Philippines to six percent and 6.2 percent in 2020 from the original target of 6.4 percent for both years. 

On the domestic front, the downward revision in growth comes from the slowdown in domestic investment in the first half because of the delayed passage of the national budget which held back public expenditure, particularly on infrastructure. 

“Public spending should regain traction for the rest of 2019, with the government committed to catching up with its spending plans, especially as new and larger infrastructure projects get underway,” ADB country director Kelly Bird said. 

“The recovery in public spending should also boost private consumption, which is currently well supported by steady overseas workers’ remittances, moderate inflation and low unemployment,” he said. 

According to the ADB with the proposed 12 percent increase in the 2020 national budget, public expenditure is expected to provide a further boost to the economy because of higher spending on infrastructure and social services. 

On the external front, Philippine exports are expected to remain weak amid slower-than-expected economic growth in major industrialized economies, which are among the country’s major export markets. 

At the same time, the multilateral bank lowered its inflation forecast to 2.6 percent in 2019 and three percent in 2020 from 3.8 and 3.5 previously as rice supply improves following the lifting of quantitative import restrictions.  

Bird said that despite the downward revision to growth expectations, economic growth is resilient amid a weak external environment. 

He thus cited the need to ramp up public investment and implement supportive fiscal and monetary policies to prop up growth. 

Despite various inflationary pressures that have come up recently such as as the outbreak of African swine fever and the recent oil attacks in Saudi, inflationary pressures remain muted and supports policy easing within the next 12 months, the ADB said. 

“As inflation is dropping down fast, most global central banks are dropping their rates. I think the conditions now show the easing of interest rates (in the Philippines) is possible as inflation is expected to settle at 2.6 percent this year. But bear in mind, there’s always going to be those blips to inflation that the central bank is going to take into account such as the African swine fever that may effect pork prices briefly and the volatility in oil prices like what was seen in the incident in Saudi attacks,” Bird said. 

“But I think most economists in the Philippines expect the central bank to lower interest rates over the next 12 months,” he said. 

Bird expects inflation in September to remain the same as the 1.7 percent rate in August. 

“Inflation is clearly on the downtrend. September inflation is expected to be about the same as August. There may be some blips that can affect prices in the short term, but inflation expectations are lower,” he said. 

In the long-term, the bank  urged the Philippine government of “proactive” economic reform to lay the foundation for higher long-term growth such as further relaxing restrictions on foreign investment and creating a national competition policy. 

Bird also noted that the immediate passage of reforms on corporate income tax will eliminate uncertainties on the part of businesses because of “predictability” of policy. 

Despite the lowered growth forecast for this year and the next, the Philippines is still expected to be among the best performers in Asia.