PHILIPPINE economic growth is expected to pick up this year on the back of high local demand, the Asean+3 Macroeconomic Research Office (AMRO) said on Wednesday.
In its Asean+3 Regional Economic Outlook (AREO) 2019 report, AMRO maintained the 6.4-percent growth forecast for the country in 2019, higher than last year’s 6.2 percent.
“Economic growth is expected to gradually recover on the back of buoyant domestic demand,” AMRO said.
The current figure mirrors that forecast by the World Bank and the Asian Development Bank (ADB), but lower than the International Monetary Fund’s (IMF) 6.5 percent.
The World Bank and ADB cited the delays in the approval of the 2019 national budget, the ongoing El Niño phenomenon and a global economic slowdown as reasons for lowering their growth-forecast figures for the country from 6.5 percent and 6.7 percent, respectively. The IMF trimmed theirs from 6.6 percent on expectations of reduced global growth.
AMRO’s projection is also lower than Cambodia’s 7.1 percent, Myanmar’s 7.3 percent, Lao People’s Democratic Republic’s 6.6 percent and Vietnam’s 6.6 percent.
For next year, the regional research office expects the economy to grow by 6.6 percent.
According to AMRO, while the country’s external position weakened, buffers remain adequate.
“The current account deficit widened to 2.4 percent of GDP (gross domestic product) in 2018, mainly driven by strong imports of capital goods and raw materials,” it said.
The report noted that the country’s financial account — which registered a net inflow of $7.8 billion, supported by strong foreign direct investment inflows — was also not sufficient to cover the current account deficit and outflows.
“The resultant funding gap was mainly met by a drawdown of the Bangko Sentral ng Pilipinas’ international reserves, [which] declined to $74.7 billion by the end of October 2018 and then edged up to $82.8 billion as of February 2019, more than sufficient to cover the country’s gross external financing needs,” AMRO said.
The report also said that, despite tighter monetary conditions, credit also continued to expand. The country’s fiscal position, it added, was also enhanced by the government’s tax reforms, which improved tax administration.
These reforms referred to the first package of the government’s Comprehensive Tax Reform Program, Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (Act) law, which was implemented at the start of 2018.
Under this law, excise taxes on certain products, including automobiles, tobacco and sugar-sweetened beverages, were raised in exchange for reduced personal income taxes.
While growth is expected to continue, AMRO said risks include global trade tensions, the slowdown of the global economy and the uncertainty in global crude oil prices.
“The major risks facing the Philippine economy are mostly short-term ones. Externally, escalating global trade tensions remain the major risk. Domestically, elevated inflation and pockets of financial vulnerabilities are the main concerns,” it said.
“Inflation has come down sharply, but uncertainty from global oil prices may delay its return to the mid-point of the target range,” the office added.
AMRO projects inflation to settle at 3.0 percent this year and next due to the government’s several non-monetary measures, including the implementation of the rice rice tariffication law.
Other risks, it said, include the “rapid credit growth over the past several years, which could potentially give rise to financial vulnerabilities.”
“Overall, risks appear to be moderating,” AMRO added.
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