Australia and New Zealand Banking Group Ltd. revised downward its growth forecast for the Philippines this year to 6.3 percent from the previous estimate of 6.5 percent, following the sluggish economic output in the first three quarters.
“Based on year-to-date realized growth in 2018, we estimate full-year 2018 GDP at 6.3 percent, slightly lower than the previous estimate of 6.5 percent,” ANZ said in a report over the weekend.
“As mentioned earlier, net exports have been the only drag on growth in the Philippines, primarily owing to strong import growth. The increase in imports has been underpinned by the government’s infrastructure spending, which rose 46 percent year-on-year during January-September this year amid disbursements related to the ‘Build, Build, Build’ program,” ANZ said.
The economy grew 6.3 percent in the first three quarters, slower than 6.8 percent in the same period last year. The slowdown was largely due to a bigger drag from net exports rather than softer domestic demand.
“In fact, strong domestic demand remains the principal cause for the deterioration in the Philippines’ external position. Domestic demand increased 9.4 percent year-on-year during the same period. Its contribution to headline GDP also stayed strong at 10.0ppt,” it said.
The bank also said that at the component level, a 15.5-percent year-on-year growth in fixed capital formation provided the main boost to domestic demand.
Government consumption also remained solid this year, rising by 13.2 percent in the first three quarters, compared to 5.4 percent in 2017.
Private consumption eased slightly to 5.6 percent from 5.7 percent a year ago, as higher inflation trimmed consumers’ purchasing power.
Both private and public sector economists pointed to inflation as one of the main culprits why GDP in the third quarter slowed to 6.1 percent from 7.2 percent a year ago.
Inflation climbed to a nine-year high of 6.7 percent in October, before easing to 6 percent in November 2018.
ANZ said the latest inflation print of 6 percent in November reinforced its view that it had peaked, adding that pressures from higher food and fuel prices and supply disruptions were finally dissipating.
“Over and above the dissipation of these pressures, multiple factors have turned supportive. The fall in global crude oil prices, a recovery in the peso, and the likely passage of the rice importation bill bode well for the inflation outlook in 2019,” ANZ said.
“That said, we remain concerned with elevated core inflation, which is indicative of strong domestic demand. We also continue to think that there is a need to trim the current account deficit and credit growth,” ANZ said.