The Philippine economy is still navigating choppy seas on its way to calmer waters.
An array of external and domestic risks could stifle growth going forward and derail the government’s ambition for the economy to continue outperforming most of its peers in the region.
From the external front, these are the easing of global growth, lingering trade tensions between the world’s two leading economic powerhouses US and China, volatility in global oil prices and disruptive technologies that could displace labor force.
From the domestic front, risks could emanate from natural hazards, power disruptions and energy sector challenges, delays in infrastructure projects, absorptive capacity of local government units to carry out devolved functions, and policy uncertainties.
“We remain vigilant and well-positioned against these downside risks to growth,” Economic Planning Secretary Ernesto Pernia assured.
The slower-than-expected economic expansion in the first half compelled the International Monetary Fund to lower its growth forecast for the Philippines this year and in 2020.
Yongzheng Yang, IMF’s resident representative to the Philippines, said the multilateral lending agency slashed its GDP growth forecasts to 6 percent this year and to 6.3 percent for next year.
The latest projections are lower than the previous forecasts of 6.5 percent for 2019 and 6.6 percent for 2020.
Yang said the downward revision reflected weaker-than-expected external demand and weaker-than-expected public investments, partly due to the delayed approval of the national budget.
But Yang said despite the revision, the forecast was still among the highest in the region, and that growth would continue to be driven by strong domestic demand.
Meanwhile, global debt watcher Moody’s Investors Service for the second time this year trimmed its growth forecast for the Philippines in 2019 to 5.8 percent from the previous estimate of 6 percent, taking into account the lackluster expansion in the first half.
Moody’s said in a report late August that the budget delay exacerbated external weakness and although domestic demand was seen to recover, it would not be enough to propel growth to at least 6 percent.
Moody’s already reduced the GDP forecast for the Philippines this year to 6 percent from 6.2 percent because of the 5.6-percent growth in the first quarter, due to the budget delay.
Bangko Sentral unfazed
Bangko Sentral ng Pilipinas Governor Benjamin Diokno shrugged off the threats posed by both external and domestic factors, saying he remained optimistic about the prospects of the Philippine economy.
“... We are well-positioned to deal with these challenges. We now have an encouraging mix of a manageable inflation environment alongside steady economic growth, which affords policymakers sufficient space to respond appropriately to evolving domestic and global conditions,” Diokno said during the EJAP economic forum.
Overall liquidity and credit conditions remain supportive of the country’s growth requirements. “We likewise continue to have a fiscal target that both delivers effective government spending while remaining prudent in meeting debt obligations,” he said.
He said the sound and stable banking system was aided by strong prudential regulation and supervision.
The continued lending activities of Philippine banks indicate their effectiveness in facilitating a smooth flow of funds in the economy, boosting economic growth. Banks remain sufficiently capitalized, while their past due ratios have consistently declined over the years. This enhances their capacity to manage risks and at the same time increase profitability. “We expect these improvements to continue given the positive outlook on the macroeconomy,” Diokno said.
He also said the robust external payments position, underpinned by comfortable FX reserves and prudent external debt management, acts as additional cushion against external vulnerabilities.
Latest BSP data show that the country’s gross international reserves as of end-July 2019 stood at $85.2 billion, which is equivalent to 7.4 months worth of imports and payments of services.
“The sizeable reserves will insulate the domestic economy from external shocks,” Diokno said.
Remittances from overseas Filipinos also went up 3.2 percent year-on-year to $14.6 billion in the first half.
Aside from the said aforementioned factors, Diokno said the current manageable inflation environment bodes well for sustaining economic growth. Headline inflation slowed down further to 2.4 percent in July, the lowest inflation reading since January 2017.
This brought the year-to-date average to 3.3 percent, well within the official government target range of 2 to 4 percent. He said price pressures eased anew in July 2019, as food inflation slowed down following the summer harvest season and amid liberalized rice importation.
“Nevertheless, we expect catch-up fiscal spending by the government to buoy the growth momentum in the second half of 2019,” Diokno said.
Finance Secretary Carlos Dominguez III said the government must increase spending in the months ahead to achieve an economic growth of more than 6 percent.
Dominguez said to achieve this year’s disbursement target, the government must spend a total of around P2.996 trillion from the second to fourth quarters of the year.
Infrastructure spending accounts for almost one-third of the amount of disbursements programmed for the said quarters. Actual infra spending in the first quarter alone amounted to P207.2 billion.
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