Economic growth likely eased to 6 percent in the first quarter from 6.6 percent a year ago, pulled down by the delay in the approval of the 2019 national budget, British bank Standard Chartered said in a report Monday.
Standard Chartered’s economist for Asia Chidu Narayanan said the growth could see the full-year 2019 gross domestic product settling at 6.2 percent, the same rate of growth last year.
The 6-percent estimate for the January-to-March period was slower than the actual 6.3-percent expansion in the fourth quarter of 2018. The government will release the first-quarter GDP data on May 9.
“GDP growth likely softened to 6 percent year-year, following a steady 6.3-percent in the fourth quarter of 2018. The budget delay likely shaved 0.3 to 0.5 percentage point off growth,” Narayanan said.
He said the growth in the first quarter was likely driven by still-solid but lower domestic demand, while negative net exports due to strong capital goods imports subtracted from the growth again.
“We expect growth to pick up in the second half on better infrastructure investment, continuing the upward momentum since Q4-2017,” Narayanan said.
He said the softening growth, combined with moderating inflation, might lead to interest rate cuts in May. The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, is scheduled to meet on May 9, following the release of April inflation data on May 7 and the first-quarter GDP growth earlier in the day.
“We expect BSP to start its rate cut cycle with a moderate 25 bps rate cut, driven by declining inflation [likely below 3 percent, the midpoint of the BSP’s target range] and softening GDP growth,” Narayanan said.
Narayanan said he expected the BSP to start cutting rates in May and predicted 100 bps of rate cuts in consecutive meetings in 2019, as inflation was seen to drop sharply in the third quarter.
“We expect inflation to fall in the third quarter due to a high base and one-off boosts from tax reforms and the end of poor weather. We estimate average inflation of 2.7 percent in 2019, down from 5.2 percent,” he said.
BSP Governor Benjamin Diokno earlier said there was “room for easing if CPI continues to cool” and reiterated BSP’s intention to further cut the reserve requirement ratio.
Narayanan said there was a possibility that 200 bps cut in RRR might happen in addition to 100 bps of policy rate reduction this year.
The inter-agency Development Budget Coordination Committee earlier reduced its growth forecast for the Philippines this year to a range of 6 percent to 7 percent from the previous target of 7 percent to 8 percent.
The growth target was set at 6.5 percent to 7.5 percent in 2020 and 7 to 8 percent from 2021 to 2022.
President Rodrigo Duterte finally affixed his signature on the P3.7-trillion national budget for 2019 after a couple of months of impasse between the two houses of Congress.
