AMRO cuts PHL growth forecast anew

THE ASEAN+3 Macroeconomic Research Office (AMRO) has slashed its gross domestic product (GDP) growth forecast for the Philippines this year and 2020, due to “heightened uncertainties in the external environment.”

However, AMRO expects a “recovery” this semester as the government catches up on its spending after the delayed passage of 2019 national budget hampered the first-half economic growth.

Based on AMRO’s preliminary assessment after its annual consultation visit in the country from Sept. 30 to Oct. 9, 2019, the international organization said it sees the Philippine economy expanding by six percent this year, lower than the already-downgraded forecast of 6.3% it gave in June, and from the 6.4% forecast published AMRO’s ASEAN+3 Regional Economic Outlook (AREO) 2019 published in May.

For next year, AMRO also scaled down its growth projection for the Philippines to 6.4% from the 6.5% it gave in July, which was already a tad lower than the 6.6% penciled in May.

“We expect the Philippine economy to expand by 6.0 percent in 2019 and 6.4 percent in 2020 respectively, marking a rebound from slowdown caused by the budget delay and spending freeze before the mid-term election,” AMRO Lead Economist Dr. Siu Fung Yiu was quoted as saying.

“However, heightened uncertainties in the external environment could exert further pressures on the Philippines’ growth and prompt financial market volatilities. Policies should be calibrated to address these challenges.”

If realized, a six percent GDP expansion this year will be at the bottom-end of the 6-7% target of the government but will be lower than the actual 6.2% recorded last year.

However, AMRO said the “ramp-up” in fiscal spending particularly on infrastructure will “support stronger economic growth moving forward.”

“The government’s ‘catch-up plan’ has led to a pickup in fiscal spending recently, however, should the fiscal spending miss the target, some budget items could be carried over into 2020,” it said.

On Thursday, the World Bank also cut its GDP growth forecast for the Philippines to 5.8% (from 6.4%) for 2019, 6.1% for 2020 and 6.2% for 2021 (both from 6.5%), indicating that the country will likely miss its 6-7% official target range for 2019, and 6.5-7.5% target for 2020 and 7-8% target for 2021.

The economy expanded by lower-than-expected 5.5% in the first half, which means GDP has to grow by an average of 6.4% this semester to reach the lower end of 6-7% official target for this year.

“The main short-term risks facing the Philippine economy stem from external sources. The intensifying U.S.-China trade conflicts, major central banks’ policies, and a hard Brexit, have weighed on business sentiments and investment spending. These uncertainties could also exacerbate the current slowing global economy and raise global market volatilities,” AMRO said.

Despite global headwinds, AMRO noted that the current “reconfiguration of global supply chains” exposes the country to opportunities but the government should still push for key reforms to sustain long-term development.

On the domestic front, AMRO noted that the government crackdown on Philippine Offshore Gaming Operators (POGO) and the moratorium on new economic zones within the National Capital Region “may have downward pressure on property market while maintaining labor productivity across the country ‘remains a challenge’.”

For the headline inflation rate, AMRO expects this to settle within the 2-4% official target band set by the government for 2019 and 2020 on the back of “contained” global oil prices and domestic food prices as well as subdued pressure on demand.

AMRO also sees the current account deficit to widen this semester with higher investments and growth. For the full-year, the current account deficit is expected to be lower than last year’s figure.

The easing bias of major central banks overseas will allow sustained capital inflows, it said, adding that the banking sector remained “sound with stable capitalization and liquidity”.

The central bank reported that the country’s current account deficit narrowed 95.6% to $145 million in the second quarter versus the $3.284-billion shortfall logged a year ago.

“The government’s commitment to prudent fiscal discipline will help contain debt accumulation, while fiscal reforms will continue to improve revenue mobilization capacity,” AMRO further said.

The annual consultation visit was led by Mr. Yiu, and AMRO Director Toshinori Doi and AMRO Chief Economist Dr. Hoe Ee Khor.

Initially established as a company in 2011 and transformed into an international organization in 2016, AMRO conducts macroeconomic surveillance and supports implementation of the Chiang Mai Initiative Multilateralization currency swap arrangement which the 10 members of the Association of Southeast Asian Nations, as well as China, Japan and South Korea adopted to help avert any financial crunch. — Beatrice M. Laforga