By Elijah Joseph C. Tubayan
THE WORLD Bank sees the Philippines sustaining last year’s economic growth pace well into 2019, but said much depends on “timely” government spending on infrastructure as well as a close watch on rising inflation pressures and the risk of overheating.
The World Bank’s East Asia and Pacific Economic Update 2018 showed the Philippines can be expected to sustain the 6.7% gross domestic product (GDP) growth it achieved last year up to 2019 — thus keeping the multilateral lender’s January projection — before slightly moderating to 6.6% in 2020.
While the projections for the Philippines outpace those for the other major Southeast Asian countries Indonesia, Malaysia, Thailand and Vietnam and a 5.4% regional average up to 2020, they fall short of the 7-8% annual target the government has adopted up to 2022, when President Rodrigo R. Duterte ends his six-year term.
Philippine economic growth averaged 6.3% in 2010-2016 during the administration of former president Benigno S.C. Aquino III which had focused on fiscal consolidation at the expense of spending, bagging a string of investment-grade credit ratings for the country.
The Philippine Statistics Authority reported separately on Thursday that it revised economic expansion in 2017’s fourth quarter to 6.5% from 6.6% initially due to downward revisions for mining and quarrying (5.4% from 8.8%); manufacturing (7.9% from 8.8%); financial intermediation (5.2% from 5.9%); as well as transport, storage and communication (4.9% from 5.4%). Upward revisions were made for construction (4.3% from 2.8%); trade (8.7% from 7.9%); electricity, gas and water supply (5.5% from 5.1%); and fishing (-0.1% from — 0.5%);
“Any growth above 6.7% would require vigorous investment in physical and human capital to push the economy beyond its current potential output,” the World Bank said in its latest report.
“Investment growth hinges on the government’s ability to effectively and timely implement the Build, Build, Build public investment program.”
The World Bank’s forecast matches the International Monetary Fund’s 6.7% projection for this year, but is below the Asian Development Bank’s 6.8% and 6.9% for 2018 and 2019, and the United Nations Economic and Social Commission for Asia and the Pacific’s 6.8% for this year.
The World Bank also cited risks to the forecast such as a potential “faster-than-expected pace of policy rate normalization in advanced economies which could further adversely impact capital flows and weaken the peso”, which is also under pressure from a widening current account deficit. A weaker peso, in turn, will pressure prices of goods to increase “at a time when global commodity prices are rising.”
“The monetary authority would need to watch for early overheating signs and if necessary adjust its accommodative monetary policy stance,” it added.
“We’re beginning to see inflation rise in the Philippines that would bolster the case for tightening monetary policy,” World Bank Chief Economist for East Asia and Pacific Sudhir Shetty said in a video conference from Jakarta.
“With the tightening, particularly in the US… it is time for central banks in East Asia and the Pacific to be ready for the tightening of rates.”