ANZ Research once more scaled down its growth forecast for the Philippines, citing the volatile global environment coupled with rapid domestic inflation.
The bank cut its 2018 growth estimate to 6.5% in its fourth quarter report published yesterday. This is lower than the 6.6% forecast announced in August, which was earlier scaled down from a 6.8% estimate issued earlier.
“[A] combination of domestic and external developments is weighing on the region’s growth prospects. This slowdown is also coming at a time of solid growth in the US, a divergence that will impact capital flows into the region,” ANZ said in the report.
“Growth in the Philippines should also be impacted albeit more moderately.”
Gross domestic product (GDP) expanded by 6% in the three months to June as household spending cooled. This brought first-half growth to 6.3%, well off the pace from the government’s 7-8% 2018 target range.
Across the region, growth may lag expectations in the context of a widening trade war between the United States and China, as well as country-specific factors like surging commodity prices.
“Inflation in the Philippines reflects a combination of the impact of tax reforms, above-potential growth and higher rice prices,” the bank said.
Prices of widely-used goods rose by 6.4% in August, a nine-year high and well above the 2-4% target set by the Bangko Sentral ng Pilipinas (BSP) on the back of food supply issues as well as rising global oil prices.
Economic managers have drafted an executive order that aims to speed up the distribution of rice, vegetables, meat and fish to the public to temper rising costs, while the central bank is readying another tightening move on Thursday to rein in inflation expectations.
The BSP has raised benchmark interest rates by 100 basis points (bp) since May. A BusinessWorld poll last week showed that economists expect a 50bp rate hike this week, amid threats that the impact of typhoon Ompong (international name: Mangkhut) would further drive up prices of produce.
“In the Philippines, a sustained uptick in CPI (consumer price index) inflation underlines market concerns that the central bank is running further behind the curve and supports the argument for another 75bp rate hike this year,” ANZ said.
The bank sees Philippine inflation averaging 5.1% this year, up from the 2.9% average in 2017 and beyond the 4.8% average for the first eight months.
In response, ANZ expects additional tightening moves from the BSP between September and December to bring benchmark yields to the 4.25-5.25% range.
By 2019, price increases will ease back to within the target range and average 4%. ANZ then sees the BSP keeping rates steady until mid-2020, according to its latest forecasts. — Melissa Luz T. Lopez