The Asian Development Bank downgraded its economic growth outlook for the Philippines this year and next, amid the slower agricultural output, higher inflation and global monetary tightening.
The ADB said in a report on Wednesday the Philippine economy would expand 6.4 percent this year, down from an earlier estimate of 6.8 percent. It also revised downward the 2019 growth forecast to 6.7 percent from 6.9 percent.
The revision was contained in an update of its flagship annual economic publication Asian Development Outlook 2018.
“ADB’s revised outlook for the Philippines―from 6.8 percent in 2018 and 6.9 percent in 2019―reflects a moderation in agricultural output and exports, as well as higher inflation and continued global monetary tightening,” ADB country director for the Philippines Kelly Bird said.
The gross domestic product grew 6.3 percent in the first half, below the official target range of 7 percent to 8 percent this year, as the slower-than-expected growth of 6 percent in the second quarter offset the 6.6-percent expansion in the first quarter.
Bird said inflationary pressures were expected to taper off next year as tighter domestic monetary policy began to take effect.
“The Philippines’ growth outlook remains stable despite moderating slightly in the first half of the year, as the country’s economic fundamentals are strong… We’re expecting growth to slowly pick up as public investment in infrastructure and social sectors accelerate and key economic sectors continue to perform solidly,” he said.
The report noted that domestic investment in the Philippines rose 16.4 percent in the first half of 2018 on healthy construction growth, while spending on industrial machinery and equipment grew by 17.1 percent.
Growth in exports of goods and services in real terms slowed to 9.8 percent from 19.5 percent over the same period last year, with electronics exports―which account for half the country’s exports―easing.
Household consumption, which represents two-thirds of GDP, grew 5.7 percent in January to June, slightly slower than the 5.9-percent increase over the same period in 2017.
Bird said this mainly reflected high remittances and a fall in the unemployment rate to 5.4 percent in July 2018 from 5.6 percent the same time last year. Public spending growth, meanwhile, almost tripled to 12.6 percent in the first half from 4.3 percent the previous year, driven by higher expenditure on social priorities including education, healthcare, conditional cash transfers to poor families and government salaries.
The ADB said industry and services were expected to continue to drive economic growth as agriculture would agriculture would likely recover from an almost stagnant 0.7-percent increase in the first half of 2018. It said the investment outlook remained positive for this year and next.
“The government’s approval of the Ease of Doing Business Act earlier this year will help streamline procedures for public transactions, while attracting private investment,” it said.
It said the economy would benefit from the government’s ‘Build, Build, Build’ infrastructure program, with infrastructure spending rising 47 percent year-on-year in the first seven months of 2018.
Data showed that as of August 2018, 44 of 75 projects began implementation.
The bank said inflation would likely settle at 5 percent in 2018 and 4 percent in 2019, exceeding the government’s official target of 2 percent to 4 percent this year.
The ADB said rising global prices for oil and other commodities contributed to underlying inflationary pressures. “Proposed reforms to replace quantitative restrictions on rice, with resulting tariff revenue to be invested to improve domestic rice farming, will help stabilize food prices over the medium-term,” according to the report.
Meanwhile, the ADB cited several external risks that could affect the economy’s further expansion, such as unexpectedly swift US interest rate tightening, heightened volatility in international financial
markets, as well as the resulting shocks from uncertain trade policy in some advanced economies.
The report said the Philippine economy would remain resilient, helped by its sound external payments position and relatively low national government debt.