A GLOBAL BANK has trimmed its growth forecast for the Philippines as increases in consumer spending and capital formation ease, and as potential long-term risks from the ongoing conflict in Marawi City add to downward pressures.
In a report, ANZ Research said it scaled down its growth projection for the Philippine gross domestic product (GDP) to 6.5% this year from 6.9% previously.
“Although growth remains strong by regional standards, the marginal momentum is softening. Of particular note is private consumption, which has been decelerating for four consecutive quarters and now appears to be settling at trend levels,” ANZ analysts said in the report published last week.
“Further downside risks could emerge from the ongoing armed conflict in Marawi City,” the report added.
“Capital goods imports have also slowed, suggesting that investment is also stabilizing.”
Philippine GDP expanded by 6.4% in January-March, slowing from the 6.6% logged during 2016’s last three months, against the government’s 6.5-7.5% growth goal for the entire 2017.
The National Economic and Development Authority attributed the first-quarter slowdown to base effects, as both consumption and government spending softened without the boost from election spending that propelled 2016 growth to 6.9%.
Latest Treasury data showed that the government incurred a P63.6-billion budget deficit as of end-May, narrower than the P75.1-billion gap incurred in the comparable year-ago period.
Several analysts have said the slower pickup in spending seen early this year “puts at risk” the state’s growth target.
The bank also flagged the conflict in Marawi as a damper on growth prospects, as the battle to retake the city from militants who have pledged allegiance to the Islamic State has raged for over a month now, claiming the lives of 89 government troops, 39 civilians and more than 300 suspected terrorists as of Sunday.
ANZ kept its growth forecast at 6.2% for 2018, which if realized would be out of the 7-8% range targeted by the country’s economic managers.
The current administration expects GDP growth to remain robust and clock among the fastest rates in the world, banking on its ambitious infrastructure spending plan that will require P8.4 trillion in public funds over the next six years.
Moody’s Investors Service credit analyst Christian de Guzman said last week that he expects state spending to increase but “not materially,” as agencies remain unable to fully spend their budget allocations.
ANZ also flagged “accelerating” credit growth as a risk for the Philippines, in the face of sustained double-digit increase in bank lending over the last two years, but said the Bangko Sentral ng Pilipinas (BSP) will likely address any potential threat through tighter regulations.
It also said the country’s trade deficit is unlikely to balloon, as growth of domestic demand and of merchandise imports eases.
The global lender sees a current account deficit equivalent to one percent of GDP this year — against the central bank’s 0.2% projection — and at 0.6% for 2018.
Inflation is projected to average three percent for the full-year, prompting ANZ analysts to trim their monetary policy forecast to just one rate hike by the BSP next quarter, versus an earlier expectation of two rate adjustments.
The central bank has kept its policy stance unchanged for 22 straight meetings since September 2014. The monetary authority has repeatedly said that it does not have to move in step with the United States, which began policy normalization in December 2015 after nearly a decade of close-to-zero rates. — Melissa Luz T. Lopez
