Continued growth to fall below target


ECONOMIC growth will likely fall below government expectations this year, despite massive spending on public infrastructure, with analysts forecasting expansion in the range of 6.3 – 6.8 percent for a median of 6.6 percent, lower than the 7 – 8 percent target.

The most optimistic with their forecasts are the Asian Development Bank, Fitch Ratings and UBS, which all said that the Philippines´ 2018 gross domestic product (GDP) would rise to 6.8 percent. HSBC, the World Bank and DBS, meanwhile, said the economy could grow by 6.7 percent.

Fastest-growing economies
An assumption of growth in the government´s infrastructure program—supported by improvements in budget execution and with more large investment projects under way—is what made the Manila-based ADB arrive at its 2018 outlook. This would maintain the Philippines´ place among the fastest-growing economies in the Asia-Pacific region, according to Fitch, an international credit ratings agency.

Financial services giant UBS also took into account the rising public investment in its forecast, saying the expansion should be supported by a wider fiscal deficit of 3 percent of GDP and also by an ambitious tax reform program that raised fuel prices and expanded the base for value-added tax in return for lower personal income taxes.

Pointing out that fiscal policy would be inflationary by 2018, UBS said the tax reform package should yield an administrative increase to inflation, seen to rise by 3.8 percent as against the target range of 2 – 4 percent by the Bangko Sentral ng Pilipinas.

“[W]hile different measures of the output gap yield varying results … our work on looking at investment rates and working-age population growth implies potential real GDP growth in the Philippines likely between 6 percent and 6.5 percent,” UBS said. “As such, we think a positive output gap is more likely. This lack of economic slack should also put upward pressure on inflation in 2018 as government policy pushes growth above potential.”

Better than expected
Better-than-expected 6.9-percent GDP growth was recorded in the third quarter while second-quarter results were likewise revised upwards. Year-to-date growth of 6.7 percent has kept the country on track to hitting the 6.5- to 7.5-percent target for 2017.

With its 6.7-percent growth forecast, banking giant HSBC said the Philippines remained on solid ground as one of Asia’s growth leaders. It added that the country contributed to Asia’s host of upside surprises on growth in the third quarter, expanding an impressive 6.9 percent. “The composition of this growth suggests that the country is firing on all cylinders, with all expenditure components contributing positively for the first time since 2014,” it stressed.

The Washington-based World Bank, meanwhile, said: “If investment growth accelerates faster along with increased spending in public infrastructure, economic expansion can be even higher in 2017 and 2018, and exceed the current projection of 6.7 percent.”

Singapore’s DBS did not provide an explanation of its forecast.

The least optimistic estimate, meanwhile, came from IHS Markit, a London-based financial-services company, which said 2018 GDP growth would hit 6.3 percent “as government infrastructure spending strengthens further, while private consumption is expected to remain buoyant.”

NEDA optimistic
With the government expecting continued strong economic growth, the National Economic and Development Authority (NEDA) said 2018 should see more infrastructure projects rolling out following the Dec. 20, 2017 groundbreaking of the Clark International Airport expansion project. This was stressed by Socioeconomic Planning Secretary Ernesto Pernia, who noted that the Philippine Development Plan (PDP) was already in place and that NEDA Board-approved projects were also being firmed up.

In June, the government launched the 2017 – 2022 PDP that will guide all of policies, programs and projects for the duration of the Duterte administration.

The NEDA Board has approved 20 project proposals—14 new and six changes in ongoing ones—this year. Most of these projects will be funded locally or through Official Development Assistance. Counting in the previous year’s approvals, the total number of infra projects is now 36.

“We are hoping that this `Build, Build, Build´ will really provide a big boost,” Pernia said. “I think we will enter the 7-percent territory by next year for the full year.”

Fitch Ratings’ raising of the Philippine’s credit rating further into investment grade territory, he added, will not only boost investor confidence but also encourage the whole of government to be efficient and swift in implementing the PDP.

“In terms of policy, we expect the implementation of the Tax Reform for Acceleration and Inclusion Act, or Train, to boost revenue-to-GDP ratio, fund government’s infrastructure program, and increase the spending capacity of the average working Filipino,” he said. “We also expect to spend more on infrastructure development to help improve regional connectivity and ease the cost of doing business in the country.”


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