Economic growth may slow down to 6.1 percent in 2019, weighed down by inflation and expected interest rate hikes by the Bangko Sentral ng Pilipinas, the local unit of Dutch financial company ING Bank said Monday.
ING Bank Manila senior economist Nicholas Mapa said in a report the bank’s estimate for 2019 Philippines gross domestic product growth would be the slowest since 2015, reflecting recent monetary policy adjustments and elevated inflation in the first half of 2019.
“Philippines growth in 2019 could post its lowest print since 2015. Recent monetary policy adjustments are expected to sap economic growth momentum, with GDP averaging 6.1 percent in 2019 and decelerating from 2018’s projected 6.2 percent,” Mapa said.
The policy-making Monetary Board of the BSP unloaded an aggressive 175-basis-point rate hike this year to contain inflation which, Mapa said, would continue to weigh on overall growth momentum in 2019.
“Elevated borrowing costs will sap both consumption and investment momentum and this will be a key theme throughout 2019. Meanwhile, inflation is expected to trend lower and eventually fall within target by the second half, after monetary and non-monetary policy measures feed into the economy,” he said.
Mapa said a recovery could be expected in the second half next year as the country was transitioning to an investment-led growth phase with capital formation and government spending driving domestic demand. Mapa said this could result in a protracted current account deficit.
Mapa said growth in the first half of 2019 would be boosted by election-related spending although a five-month ban on public spending could well offset this positive development. He said post-election, decelerating inflation would partially restore lost purchasing power while also helping to lead financing costs lower.
“This should lead to a slightly faster pace of growth in the second half as household spending, business investment and government spending accelerate from the first half,” he said.
The economy grew 6.1 percent in the third quarter, slower than 7.2 percent a year ago and 6.2 percent in the second quarter. The sluggish performance was blamed on the decline in agricultural output and slowdown in household spending, which was triggered by the higher inflation rate.
The Monetary Board raised for the fifth time this year the benchmark interest rates by 25 basis points to 4.75 percent on Nov. 15 to further temper the accelerating inflation.
This brought the total increase in the policy rates this year to 175 basis points since May 2018. The interest rates on the overnight lending and deposit facilities were raised accordingly.
The board is set to hold its last policy meeting for the year this month.