MANILA -- Fitch Solutions is maintaining its 6.1 percent growth forecast for the Philippines in 2019, after noting the almost steady expansion last year.
In a report, the Fitch Group unit said the domestic economy’s 6.2 percent output, as measured by gross domestic product (GDP), in 2018 was in line with its projection, but lower than the previous year’s 6.7 percent.
Although domestic expansion remained at the 6-percent level, last year’s GDP was slower year on year due to the reduced growth of private consumption -- caused by elevated inflation, and weaker exports.
Last year, the Bangko Sentral ng Pilipinas (BSP) hiked its key rates by a total of 175 basis points to help address the big jumps in the rate of price increases.
Inflation peaked at 6.7 percent from September to October but decelerated to 6 percent and 5.1 percent in the succeeding two months after supply-side inflationary pressures were addressed through non-monetary measures, such as increasing rice supply nationwide.
Amid the slowdown in inflation rate, Fitch Solutions expects “further tightening of monetary conditions, the likelihood of a re-escalation of global trade tensions, and a deteriorating business environment.”
These three factors, it said, are seen “to weigh on the Philippines’ economic growth momentum.”
“The strong public investment drive will be insufficient to offset growing external headwinds and weak private investment,” the economic think tank further said.
It does see the importance of increasing the government’s infrastructure investment to ensure the economy’s long-term growth.
“In our view, scaling up public infrastructure investment in the Philippines will be essential for long-term growth sustainability and competitiveness given the poor state of infrastructure condition,” it said.
In its report, Fitch explained that “public investment if well-managed can help boost overall productivity and crowd in private investment.”
On the other hand, it noted that “we believe that in the case of the Philippines, returns from large-scale public-led infrastructure projects are typically not maximized, due to hasty appraisal and a sub-optimal public procurement system.”
“This could end up increasing the country’s debt burden without commensurating increase in productivity, instead weighing on future growth potential,” it said.
“Furthermore, we believe that the deteriorating business environment will likely weigh on private investment over the coming quarters,” it added.
Meanwhile, the report also does not expect positive results from the ongoing trade talks between the US and China, which started last December 1.
“We believe that there will not be a lasting resolution to the trade dispute after the end of the truce on March 1,” it said.
It thus stressed that “a re-escalation of trade tensions will not only disrupt global supply chains and investor confidence, but also weigh directly on China’s economic growth and hence export demand from the Philippines.” (PNA)
