By Chino Leyco
The Asian Development Bank (ADB) has downscaled its economic growth forecasts for the Philippines amid the skyrocketing commodity prices following the anemic performance of the agriculture sector.
LEAN TIMES — A 'harvest moon', the term for the nearest full moon to the autumnal equinox, rises over Manila Bay Tuesday. The harvest moon usually augurs a period of plenty, but definitely not for the country, where rising consumer prices have prompted the ADB to lower its growth forecast for the Philippines. (Czar Dancel/ MANILA BULLETIN)
The Manila-based multilateral institution is projecting that the country’s economy, as measured by its gross domestic product (GDP), would grow by 6.4 percent this year, slower than its earlier forecast of 6.8 percent.
ADB also revised downwards its economic growth estimate for next year to 6.7 percent from 6.9 percent.
According to ADB, the slower GDP forecasts reflect “a moderation in agricultural output and exports, as well as higher inflation and continued global monetary tightening.”
The bank said the rate of increase in consumer prices would move at a much faster pace than the Duterte administration’s target range of 2.0 percent to 4.0 percent, but it is expected to taper off next year as tighter domestic monetary policy begins to take effect.
For 2018, ADB already raised its inflation projection from 4.0 percent to 5.0 percent as global oil prices and other commodities continued to rise.
However, the bank expects inflation to slowdown in 2019 to 4.0 percent, or at the upper end of the government’s target. But ADB’s 2019 latest forecast is slightly higher than the earlier 3.9 percent.
“Inflationary pressures are expected to taper off next year as tighter domestic monetary policy begins to take effect,” ADB said.
“Proposed reforms to replace quantitative restrictions on rice, with resulting tariff revenue to be invested to improve domestic rice farming, will help stabilize food prices over the medium-term,” it added.
As of end-August, inflation averaged 4.8 percent.
In a briefing, Kelly Bird, ADB Philippines country director, said that the country’s growth outlook remains stable despite moderating slightly in the first half of the year, citing the nation’s economic fundamentals are still strong.
“We’re expecting growth to slowly pick up as public investment in infrastructure and social sectors accelerate and key economic sectors continue to perform solidly,” Bird said.
He cited that domestic investment rose by 16.4 percent in the first half of the year due to healthy construction growth, while spending on industrial machinery and equipment grew by 17.1 percent.
Growth in exports of goods and services in real terms, meanwhile, slowed to 9.8 percent from 19.5 percent in the same period last year, with electronics exports – which account for half the country’s exports – easing.
Household consumption, which comprises two-thirds of GDP, grew by 5.7 percent from January to June, slightly lower than the 5.9 percent in the previous year.
Public spending, meanwhile, almost tripled to 12.6 percent at end-June from 4.3 percent in the previous year, driven by higher expenditure on social priorities including education, healthcare, conditional cash transfers to poor families, and government salaries.
Looking ahead, ADB projects industry and services will continue to drive economic growth as agriculture recovers from an almost stagnant 0.7 percent increase in the first semester, while the investment outlook remains positive for this year and next.
The government’s approval of the Ease of Doing Business Act earlier this year will help streamline procedures for public transactions, while attracting private investment, ADB said.
It also said that the local economy will benefit from the government’s “Build, Build, Build” infrastructure program, with infrastructure spending rising 47 percent year-on-year in the first seven-months of the year.
As of August 2018, 44 of 75 projects have been implemented.
“External risks include unexpectedly swift US interest rate tightening, heightened volatility in international financial markets, as well as the resulting shocks from uncertain trade policy in some advanced economies,” ADB said.