S&P keeps PH economic growth for 2019 at 6.3%

S&P Global Ratings is maintaining its Philippine growth forecast for this year at 6.3 percent, as it sees the worsening trade war between the United States and China and an expected resurgence in inflation as major risks to economic expansion.

The figure is higher than the 6.2-percent growth posted last year and falls near the lower end of the government’s downwardly revised 6.0-7.0 percent target.

“Despite the weaker-than-expected first quarter, we continue to expect GDP (gross domestic product) growth to come in at the low end of the 6-6.5-percent range this year,” the global debt watcher said in a report released on Tuesday.

Philippine economic growth decelerated to a lower-than-expected 5.6 percent in the first three months of the year, well below the government’s target.

“The fiscal impulse is definitely lower in the first half of 2019, but we expect infrastructure spending to ramp up again in the second half, making the overall impulse about neutral for 2019,” S&P said.

Last week, the country’s economic managers said they would embark on an “expenditure catch-up plan” to offset the negative impact of the delayed approval of the 2019 national budget on growth.

The credit rater said falling inflation would also allow the Bangko Sentral ng Pilipinas (BSP) to cut interest rates at least once more this year, while also spurring consumption growth.

The central bank’s Monetary Board decided to trim its key interest rates by 25 bps during its May 9 meeting on expectations that inflation would remain manageable.

Inflation decelerated to its slowest pace in 16 months at 3 percent in April, consistent with the Bangko Sentral’s expectation that inflation would continue to settle within the 2.0-4.0-percent target range for both 2019 and 2020.

Risks lurk

S&P warned, however, that risks to external financing and exchange-rate volatility were back on the radar as the trade war between the world’s two biggest economies escalate.
“The spillovers of the trade war to the Philippine electronics sector could also be larger than we anticipate, at least in the short run,” it said.

In the domestic scene, the credit ratings agency said “a resurgence in inflation from either [the] El Niño [weather phenomenon] or oil prices still remains possible and could weigh on the consumption recovery and the ability of BSP to ease, at a time when the fiscal impulse is already negative in the first half of the year.”

S&P’s view is consistent with BSP Governor Benjamin Diokno’s earlier statement that rising global oil prices and a prolonged, El Niño-caused drought “could be a source of upside price pressures over the near term.”

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