World Bank downgrades PH growth outlook to 5.8%

THE World Bank again trimmed its 2019 Philippine growth forecast on account of the slowdown in public investments, weakening global economic growth and trade tensions between the United States and China.

In its “Philippines Economic Update” report released on Thursday, the multilateral lender reduced the projection to 5.8 percent from the earlier 6.4 percent.

The revised outlook falls below the government’s 6.0- to 7.0-percent downwardly adjusted growth target.

“The downward revision considered the impact of the recent global development [on] the Philippine economy, as well as the sharp slowdown in investments growth in the first half of 2019,” World Bank Senior Economist Rong Qian said.

“While the government is trying to accelerate public investment to compensate for the underspending in the first half of the year, [there are] still implementation challenges that might prevent a full catch-up,” she added.

The economist however, said, that growth is expected to reach 6.1 percent in 2020 and 6.2 percent in 2021, “as the impact of the budget delay dissipate assuming timely passage of the new budget.”

The country’s gross domestic product (GDP) slowed to 5.5 percent in the first half of the year, which was blamed on the four-and-a-half-month delay in the passage of the 2019 national budget, affecting state spending.

Economic managers announced in late May an expenditure catch-up plan to boost growth and hit a GDP rate of above 6 percent this year.
Qian said, however, that government spending is yet to pick up.

“While the government is trying to accelerate public investment to compensate for the underspending in the first half of the year, there’s still implementation challenges that might prevent a full catch-up,” she said.
The weak external environment activity will also remain subdued, the economist added.

Possible recession

According to her, a possible recession is some advanced economies also pose a risk to Philippine growth.

Strong private consumption on the back of lower inflation, a higher employment rate, robust remittances and rising wages, however, is expected to bolster growth.

The recovery in public investment spending and a strong services sector will also fuel growth.

“Private consumption growth remain robust and the uncertainty around the passage of the [government’s tax reform passages] will dissipate soon. Fiscal policy is expected to remain supportive of growth as public investment recovers [and gets] back on track to close the country’s ingrastructure gap,” said Qian.

“Monetary policy is also expected to be accommodative as inflation pressure diminish. Poverty reduction is likely to continue in the medium term, supported by the continued shift to non-agricultural employment, rising wages, social program and stabilizing inflation,” she added.

The World Bank estimates that poverty incidence will further decline to 20.8 percent this year, while the poverty rate will dip further to 19.7 percent in 2020 and 18.7 percent in 2021.

Qian cited the importance of passing the 2020 budget on time and the need to pass investment-friendly reforms, such as amendments to the Public Service Act and Retail Trade Liberalization.

“In the medium term, accelerating implementation of high-impact infrastructure projects and the recently approved critical reforms, like the “Ease of Doing Business” and ["Rice Tariffication”] laws, will also help the country sustain inclusive growth that generates high-paying jobs and reduces poverty,” she said.