Inflation mars ADB’s economic picture of PHL

By Elijah Joseph C. Tubayan
Reporter
THE ASIAN Development Bank (ADB) has retained economic growth estimates for the Philippines that made the country one of Asia’s best performers, but at the same time upped its projected inflation rate this year to one of the region’s fastest.
In the Asian Development Outlook Supplement which ADB released on Wednesday, the regional lender kept its 2018 and 2019 Philippine gross domestic product (GDP) growth forecasts at 6.4% and 6.7%, respectively, from its September report.
“GDP growth is seen accelerating through 2019, supported by robust public and private investment. Growth forecasts are maintained at 6.4% for 2018 and 6.7% for 2019,” ADB said.
If realized, the Philippines’ 2018 growth would be slower than the actual 6.7% recorded in 2017, while 2019’s pace would match that of last year.
The nine months to September saw GDP growth average 6.3%, which the ADB said “remained strong” even as it was slower than the 6.8% clocked in the same period last year.
“Investment was the biggest contributor to growth, followed by household consumption. Investment growth accelerated to 16.7% in the first three quarters from 9.8%. Public and private construction growth quickened, as did investment in durable equipment. Growth in government spending also picked up on higher social service expenditure and on salary hikes for government workers,” the development bank said.
“Drag on GDP growth from net exports deepened, however, as strong domestic demand fueled a surge in imports, especially of capital goods, and as a weaker external environment slowed export growth.”
ADB’s forecasts compare with the World Bank and International Monetary Fund’s 6.5% and 6.7% for 2018 and 2019, respectively, and the 6.7% estimate of the Organization for Economic Cooperation and Development for both years.
ADB’s economic growth prospects for the Philippines are higher than the Southeast Asia average estimates of 5.1% for 2018 and 2019, as well as the six percent and 5.8% in 2018 and 2019, respectively, of “developing Asia”, consisting of 45 of the regional lender’s 67 members.
The Philippines will be the third-fastest this year after Vietnam (6.9%) and China (6.6%), and will be the second-best in 2019, again after Vietnam (6.8%) and ahead of China (6.3%).
ADB stated that infrastructure spending was also strong in Brunei, Indonesia, and Thailand, but noted that Malaysia saw a decline.
INFLATION RISK
At the same time, ADB increased the Philippines’ inflation projection this year to 5.3% — matching the forecast of the Bangko Sentral ng Pilipinas — from five percent initially, and retained the four percent outlook for 2019.
“… the Philippines saw inflation moderate to 6.0% in November from a high of 6.7% in October, for an average of 5.2% in the first 11 months, well up from 2.9% a year earlier. Food prices rose significantly owing to weak agricultural output, and high global oil prices early in the year and new excise taxes contributed to inflation,” ADB said.
“While inflation is expected to ease, the full-year average is still likely to exceed the projection in the Update. The inflation forecast for 2018 is therefore revised up from 5.0% to 5.3%,” it explained.
“The recent buildup in inflationary pressure should moderate next year, with inflation still projected at 4.0%, as in the Update,” it noted, adding: “Tight monetary policy will kick in following a cumulative rate hike of 175 basis points implemented from May to November 2018.”
The ADB cited that: “Oil prices continue to drop as supply outpaces expectations, which reduces pressure on external balances in the region, particularly in India and the Philippines.”
Its inflation forecast for the Philippines is above Southeast Asia’s forecast average of 2.7% in 2018 and 2.8% in 2019, and on the list except for Kazakhstan, whose overall price increases will clock in at 6.3% this year and 6.5% in 2019.