The economic growth in the Philippines is expected to decelerate to 6 percent this year from 6.2 percent in 2018, as the negative impact of the delayed budget approval will likely extend until the second quarter, Australia and New Zealand Banking Group Ltd. said over the weekend.
ANZ said in its “Asia Economic Outlook” report that the impact of the delayed 2019 budget was apparent from a contraction in public spending and the attendant impact on private investment.
“The latter was also likely affected by rate hikes made last year. Indeed, we expect the impact from the delayed budget along with the election-related public construction ban to have extended into the second quarter,” ANZ said.
“Capital imports and government disbursements in April remained disappointing, suggesting sustained weakness in public spending and investment,” it said.
The economy grew 5.6 percent in the first quarter, slower than 6.5 percent a year ago and 6.3 percent in the fourth quarter, weighed down by the delayed approval of the 2019 national budget.
The 5.6-percent expansion was the slowest in almost four years. Private consumption was the only component that accelerated in the first quarter at 6.3 percent year-on-year against 5.3 percent in the last quarter of 2018.
“Higher passenger car sales suggest that private consumption will remain firm, in line with improving consumer sentiment. All in all, we continue to expect GDP growth to come in at 6 percent in 2019,” ANZ said.
ANZ said the silver lining to the growth slowdown was that it could help arrest some of the underlying imbalances in the Philippine economy such as imports, credit and inflation.
Citing the latest data on a three-month moving average basis, merchandise imports grew at a slower pace of 2.8 percent year-on-year in April compared to 10.3 percent in December 2018.
The monthly trade deficit averaged $3.1 billion in the last three months, compared to $4.2 billion in the fourth quarter 2018. Over the same period, the contraction in exports also slowed.
“If these trends continue, the current account balance as a percentage of GDP will improve in 2019. Total credit growth has also slowed to 12.8 percent in April from 16.0 percent y/y in December [on a 3-month moving average basis], which is a more sustainable pace, in our view,” ANZ said.
It said while the easing inflation rate largely reflected the monetary tightening last year and non- monetary measures, slower growth should curb inflationary pressures through 2019.
Inflation averaged 3.6 percent in the first five months, well within the 2019 target range of 2 percent to 4 percent.
The Bangko Sentral ng Pilipinas trimmed its inflation forecasts for 2019 and 2020 to 2.7 percent and 3 percent, respectively.