The World Bank on Thursday revised downward its 2018 growth forecast for the Philippines to 6.5 percent from an earlier estimate of 6.7 percent, saying that downside risks such as the slowdown in global trade could weigh on exports.
The bank, however, kept its 2019 growth projection at 6.7 percent and expects 2020 growth to reach 6.6 percent. The latest forecasts were contained in a report titled “Philippines Economic Update: Staying in the Course Amid Global Uncertainty.”
“The Philippines’ economic growth outlook remains positive, yet downside risks have increased. An expected slowdown in global trade in the medium term is likely to further dampen Philippine exports,” the bank said.
“Nevertheless, baseline economic growth is projected at 6.5 percent in 2018, 6.7 percent in 2019, and 6.6 percent in 2020,” it said.
The bank said there were considerable risks to the current growth forecasts, including the increasing global uncertainty amid the trade tensions between the US and China and the rising interest rates in the US. This could raise external financing cost and further weaken the peso, it said.
“To manage these risks, maintaining strong macroeconomic fundamentals is key. At the same time, accelerating structural reforms to improve investments in physical infrastructure and make better use of capital, labor, and technology to increase productivity remains a very important agenda for the Philippines,” Mara Warwick, World Bank country director for Brunei, Malaysia, the Philippines and Thailand, said.
“In the long-term, sustaining high productivity growth is critical for the country to become a prosperous society free of poverty,” she said.
“The Philippines is fairly resilient against capital outflows compared to many of its neighbors in the East Asia Region,” said Birgit Hansl, World Bank Lead Economist for Brunei, Malaysia, Philippines, and Thailand.
“It has large foreign reserves, flexible exchange-rate, low public debt, and robust remittance inflows. At this juncture, preserving the country’s resilience rests in large part on preventing the current-account deficit from widening too much and too fast,” she said.
The bank said the baseline investment growth outlook was positive and the planned senatorial and local elections in May 2019 were expected to lead to higher public spending and higher private consumption.
“However, persistent high domestic inflation could have a dampening effect on consumption and investment growth,” it said.
Inflation in the first eight months averaged 4.7 percent, above the target range of 2 percent to 4 percent set by the Bangko Sentral ng Pilipinas. The August inflation alone of 6.4 percent was the fastest in nine years, or since it hit 6.6 percent in March 2009. It was driven by faster increases in the prices of rice, meat, vegetables, and fish.
The faster inflation compelled the Bangko Sentral to increase again by another 50 basis points the benchmark interest rates to 4.5 percent during the last policy meeting on Sept. 27.
The World Bank said that a faster normalization of monetary policy in the United States and an increase in global uncertainty, including trade tensions, could worsen external financing conditions for emerging market economies like the Philippines and elicit additional domestic interest rate hikes that could raise domestic borrowing costs for businesses and households.
The International Monetary Fund also cut its growth forecast for the Philippines this year to 6.5 percent from 6.7 percent, taking into account the slower-than-expected expansion of 6.3 percent in the first half.
IMF resident representative to the Philippines Yongzheng Yang said there was nothing dramatic in the forecast reduction and the bank just considered the sluggish outturn in the first semester.
GDP expanded 6.6 percent in the first quarter but managed to grow by only 6 percent in the second quarter.