Fitch Solutions Macro Research, a unit of Fitch Group, downgraded its 2019 growth forecast for the Philippines to 5.9 percent from its previous estimate of 6.1 percent, taking into account the external headwinds that may stifle further economic expansion in the months ahead.
Fitch Solutions said in a commentary published Wednesday that Philippine economic growth would fall below the government’s 6 percent to 7 percent expansion target in 2019, slowing to 5.9 percent before rebounding modestly to 6.3 percent in 2020.
“This marks a downward revision to our forecast from 6.1 percent previously for 2019. Trade tensions and a general softening of external demand will continue to drag on headline growth,” Fitch Solutions said.
“While we expect a pickup in real GDP growth from the first quarter onwards, we at Fitch Solutions have lowered our real GDP growth forecast to 5.9 percent for 2019, expecting a more gradual recovery from the first-quarter 2019 dip,” it said.
“However, government consumption will pick up and monetary policy will once again become more accommodative to support growth over the coming quarters,” it said.
It said the Philippine economy was set for a slower pace of growth over the coming quarters, as the external backdrop would drag on headline growth.
The gross domestic product grew 5.6 percent in the first quarter, slower than 6.5 percent a year ago, weighed down by the delay in the approval of the 2019 government budget.
The Philippine Statistics Authority said this was the slowest growth rate recorded in 16 quarters since it settled at 5.1 percent in the first quarter of 2015. It was also slower than 6.3 percent in the fourth quarter of 2018.
Fitch Solutions said net exports, weaker investment aside from government spending, weighed on the headline growth figure, as trade tensions and delays passing the 2019 budget weakened momentum.
President Rodrigo Duterte affixed his signature on the P3.7-trillion national budget in April after the long impasse between the two houses of Congress.
Fitch said despite the delay, the fiscal stimulus should pick up in late 2019 and heading into 2020.
“However, the weak external backdrop will prove a drag on headline growth, owing to ongoing US-China trade tensions and slowing global growth,” it said.
It said the escalation in trade tensions between the US and China in May would deepen the external drag on the Philippine economy.
The US and China accounted for 15.6 percent and 12.9 percent, respectively, of exported goods from the Philippines in 2018, with Hong Kong and Japan also key markets accounting for 14.2 percent and 14.0 percent of exports, respectively.
It said the slowdown in global growth was already providing a less supportive backdrop for exports in 2018, with growth slowing to 6.5 percent from 9.9 percent in 2017.
It said increased trade tensions between the US and China has had a ripple effect across Asia, weakening demand across the supply chain and dampening business confidence in the first half of 2019.
“A further escalation of tensions or prolonged period of the tariffs introduced in May could likely lead us to revise down our growth forecast of 6.3 percent in 2020,” Fitch Solutions said.