Metro Manila (CNN Philippines, September 25) — Prospects for the Philippine economy dimmed further, with the Asian Development Bank (ADB) scaling down its growth forecast to just 6 percent this year.
The multilateral lender reduced the growth estimate for the Philippines anew on Wednesday in its Asian Development Outlook Update report, down from 6.2 percent projected in July. Back in April, the ADB said the economy could expand by 6.4 percent.
“The downward revision in growth comes from the slowdown in domestic investment in the first half of 2019 mainly caused by the delayed passage of the 2019 national budget, which held back public expenditure, particularly on infrastructure,” the ADB said in a statement.
The 2019 national budget only took effect in April as lawmakers were caught in a deadlock over alleged last-minute insertions in the spending bill. Government agencies had no choice but to operate under a reenacted budget, which left new projects unfunded. The ban on public works for three months leading to the May 13 midterm polls also pushed back rollout of projects, the ADB added.
READ: Gov’t keeping up hopes of 6-7% growth this year
With anemic state spending, growth averaged 5.5 percent from January to June, well below the state’s 6-7 percent goal for 2019.
State spending slumped during the first half, settling below last year’s ₱1.6 trillion, Treasury data showed. Fund releases have started to pick up as of end-August.
Despite this, ADB Country Director Kelly Bird said public spending should “regain traction” for the rest of 2019, as the Executive implements a bold catch-up plan for public projects.
“On the domestic front, growth prospects will hinge on how quickly the government can catch up on its public spending on infrastructure after the delays suffered in the first half of the year,” the report added, pointing out that easing foreign investment limits would boost domestic activity.
“The recovery in public spending should also boost private consumption,” Bird said, pointing out that slower inflation, low unemployment rate, and steady remittance inflows from overseas Filipino workers will prop up demand.
Last year’s surge in consumer prices has mellowed, with the ADB expecting 2019 inflation at 2.6 percent and 3 percent next year. Softer price increases give room for further cuts in interest rates, which have already been reduced by 50 basis points in May and August.
It further projects a faster 6.2 percent expansion in 2020, although softer than the earlier 6.4 percent forecast.
For the rest of the region, growth in Southeast Asia would likewise slow to 4.5 percent coming from a 4.9 percent projection, as it takes a beating from the trade war between the United States and China, weaker global trade, a slowdown in the electronics cycle, and a sharp export downturn. Subdued farm output due to the El Niño phenomenon is also a factor, the Japan-led lender said.
CNN Philippines Correspondent Sandra Zialcita contributed to this report.
Overall growth in the developing economies of Asia will ease to 5.4 percent for 2019, down from 5.9 percent the previous year, the ADB said.
Softer inflation
Boosting growth a must
In a separate report, the inter-agency Financial Stability Coordination Council (FSCC) said the government should prioritize pro-growth measures.
“From the FSCC’s perspective, re-energizing growth is the principal task at hand for the Philippines,” read the Financial Stability Report published Wednesday, which assesses the domestic and global economy from the first half of 2018 to the first semester of 2019.
It said even the country’s financial stature depends on sustained and rapid growth.
“In financial markets, sustaining economic growth is tantamount to sustaining income streams. Debt-to-income ratios are then sustainable only if the growth of income is commensurate to the pace at which debt was accumulated,” the FSCC added, as it cautioned that economic managers cannot expect “benign conditions” in the global market.
Catching up after the four-month budget delay as well as increased spending on infrastructure are interventions that would boost the economy, the FSCC said.
The FSCC is an interagency body composed of the Bangko Sentral ng Pilipinas, Department of Finance, Insurance Commission, the Philippine Deposit Insurance Corporation, and the Securities and Exchange Commission.
