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AMRO adds to expectations of PHL growth slowdown as price hikes bite

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A REGIONAL research group has slashed its growth forecast for the Philippines, noting that surging inflation and consumer pessimism will likely weigh on household spending and dampen overall expansion.

The ASEAN+3 Macroeconomic Research Office (AMRO) joined multilateral lenders in trimming the growth estimate for the Philippines to 6.5% from 6.8% previously, as reported in the October issue of its Regional Economic Outlook.

That puts the Philippines as the sixth fastest-growing economy among the 10 Association of Southeast Asian Nations (ASEAN) members plus China, Hong Kong, Japan and South Korea, while domestic inflation is the fastest across the 14 markets covered.

“For the growth rate revision, the main reason is that inflation is higher than previously expected, and high inflation continued to erode the purchasing power of household and consumer confidence,” AMRO chief economist Hoe Ee Khor said via e-mail when sought for an explanation.

Myanmar is expected to post the fastest growth at 7.4%, followed by Cambodia (7.2%), Vietnam (6.9%), Laos (6.7%) and China (6.6%).

Philippine gross domestic product (GDP) posted a disappointing six percent expansion in the second quarter, fueling last semester’s climb to 6.3% against the government’s 7-8% target for the full year and the 6.6% actually clocked a year ago.

Meanwhile, inflation is projected to soar to 5.2% for 2018, a leap from the 3.2% average last year. Mr. Khor said rising costs of basic goods are eating into real GDP growth, and are expected to be the major hurdle to expansion.

September inflation churned a fresh nine-year high at 6.7% as food, transport and utility costs kept increasing amid supply bottlenecks and elevated oil prices. This placed the third-quarter average at roughly 6.3% while the nine-month pace hit five percent, well above the 2-4% target band for 2018.

“Private consumption has already shown some weakness and GDP growth decelerated to six percent in Q2 2018. Moreover, consumer confidence contracted in Q3 2018 for the first time since Q3 2016. Thus, as private consumption takes up around 70% in GDP, it led to the revision,” the AMRO official said.

The central bank’s Consumer Expectations Survey bared a net -7.1% reading in the third quarter, showing that more Filipinos were pessimistic towards economic prospects as they see commodity prices maintain their ascent. This is the first time since mid-2016 when the confidence score was in the negative, and is the lowest since the fourth quarter of 2015.

The AMRO’s revisions mirror similar downgrades by the World Bank and the International Monetary Fund, while the Asian Development Bank pencilled in a lower forecast of 6.4% the past week.

AMRO said that the downward-revised growth rate “still reflects the robust growth of the Philippine economy.”

Budget Secretary Benjamin E. Diokno last week conceded that the state’s growth goal is as good as missed, but could still manage to hit 6.7-6.9% as he expects economic activity to improve this semester.

In 2019, AMRO sees Philippine GDP growth slowing further to 6.4%. This is slower compared to the 6.7% given by the IMF and the World Bank.

Mr. Khor said his group was watching external risks “closely,” after it maintained the ASEAN+3 region forecast at 5.4% this year, “as most economies are on track to achieve their growth targets,” even as it shaved its 2019 projection to 5.1% from 5.2% initially.

Still, AMRO expects the Philippines to be resilient to external shocks, as its macroeconomic fundamentals remain sound.

“The macroeconomic fundamentals of the Philippines are generally sound, with no serious external imbalance and it has ample international reserves,” Mr. Khor said.

“Moreover, the latest data suggest that the current account deficit remained contained and the basic balance is still positive. Thus, the economy is expected to remain resilient against external shocks.” — Melissa Luz T. Lopez and Elijah Joseph C. Tubayan