By Bernadette D. Nicolas &
Cai U. Ordinario - October 17, 2018
THE trade blows being exchanged by
the United States and China, high oil prices and slow farm growth which
hastened inflation, prompted the Philippine government to temper its growth
expectations for the year.
The Cabinet-level Development Budget
Coordination Committee (DBCC) on Tuesday revised downward its GDP growth
forecast for 2018 to a range of 6.5 percent to 6.9 percent, from 7 percent to 8
percent. Growth targets for 2019 and 2022, however remained at 7 percent to 8
percent.
Finance Secretary Carlos G.
Dominguez III told reporters in a news briefing on Tuesday that the spike in
oil prices combined with the trade war contributed to the uncertainty in the
global economy.
“We have to realize that we are
living in a different world now. Six months ago, there were only rumors of war,
trade war. Prices of oil have risen very steeply,” Dominguez said.
“Interest rates which factored in
risks have increased and the US normalization of their interest rate policy has
continued and looks like will continue in the future, driving interest rates
up. So the world starting in May has been very difficult and I think our
estimates and projections just reflect these things,” he added.
He also added that supply-side
problems also accelerated inflation, which surged to a new nine-year high of
6.7 percent in September, bringing the year-to-date average at 5 percent.
“Another reason for these
supply-side problems is the very slow growth of agriculture in the first half
of the year, so we are implementing functions that will hasten or improve the
growth in agriculture,” he said.
The downward revision came after
multilateral development banks slashed their growth forecasts for the
Philippines. Manila-based Asian Development Bank revised downward its growth
outlook from 6.8 percent to 6.4 percent. World Bank has also cut its forecast
from 6.7 percent to 6.5 percent this month.
Optimism
The National Economic and
Development Authority (Neda) believes the economy can still attain an average
growth of 6.7 percent, or even 6.8 percent, in the second half of the year to
attain its revised economic target.
Socioeconomic Planning Secretary
Ernesto M. Pernia told reporters on the sidelines of a DBCC news briefing that
this would bring full-year growth to at least 6.5 percent.
“I think we just need to grow 6.7,
6.8 in the second half,” Pernia said confidently. “Yeah, we can attain that.”
Pernia said the government’s
infrastructure program is “humming” and the 44 projects that are currently
under implementation are on track.
He said, however, that higher
inflation could dampen consumption. But this will not drag down economic growth
significantly.
“There will be no let-up in
infrastructure [projects],” Pernia said. “I guess it [consumption] will be a
bit softer but not much because we really are a consumption-driven economy.”
Some economists are less optimistic
than the President’s economic team. Former Socioeconomic Planning Secretary
Romulo L. Neri told the BusinessMirror that the huge trade deficit was
“worrisome.”
Neri, who was the head of Neda
during the term of former President Gloria Macapagal-Arroyo, said it is
unlikely that the government’s growth targets will be met this year.
He said the trade deficit is
complicated by the decline in overseas Filipino worker (OFW) remittances and
slower business-process outsourcing (BPO) revenue growth.
Neri added that supply issues of
rice and oil affect inflation, as well as the onslaught of Typhoon Ompong. This
is complicated by the weak peso which could accelerate inflation.
“The Bangko Sentral ng Pilipinas
will be forced to further increase interest rates and as a result raise
business costs. This will put further pressure on inflation and dampen business
investments and consumer spending and GDP growth,” Neri said.
Ateneo Center for Economic Research
and Development Director Alvin P. Ang told the BusinessMirror that the National
Income Accounts in the third quarter will be crucial in determining whether
there is a need to adjust the Acerd’s growth estimates.
Ang said, however, that the DBCC’s
revised forecasts, particularly for growth, is still “more optimistic” than
their projection of 6 percent to 6.3 percent.
Nonetheless, Ang said inflation
expectations of the DBCC are within the Acerd’s projections for the year. The
DBCC said inflation will likely average 4.8 percent to 5.2 percent this year
and 3 to 4 percent in 2019.
Other
assumptions
The DBCC, headed by Budget Secretary
Benjamin E. Diokno, has also adjusted its forecasts for inflation, Dubai crude
oil price, peso-dollar exchange rate, and the expansion of goods exports and
imports for the year.
While the inflation forecasts for
this year and in 2019 have been adjusted upward, the government retained its
inflation expectations from 2020 to 2022 at 2 percent to 4 percent.
“This is consistent with the
government’s expectations that inflation will go back to the target level by
next year,” the DBCC said in a joint statement read by Diokno.
“We are optimistic that the
administration has taken enough measures to tame inflation in the last quarter
of 2018 and the full year of 2019,” the statement read, citing Administrative
Order 13 Series of 2018 and Memorandum Orders 26 to 28 issued last month to
boost food supply and cut the prices of food items.
The assumption for the Dubai crude
oil price was also adjusted upward, with the DBCC expecting it to average $70
to $75 per barrel for 2018. For 2019, the price range is projected to increase
to $75 to $85. In 2020, this may drop to $70 to $80 and to $65 to $75 in 2021
and 2022.
Moreover, the peso-dollar exchange
rate projection for the year was revised upward to an average of 52.5 to 53
from 50 to 53. In 2019, it is seen to be within the range of 52 to 55 until
2022. Previous forecast for 2019 to 2022 was 50 to 53.
The DBCC has also tempered its
growth forecasts for goods exports and imports. In 2018 the government expects
goods exports to expand by 2 percent while the import bill may rise by 9
percent.
From 2019 to 2022, goods exports
will likely grow by 6 percent. Goods imports will expand by 9 percent in 2019
and 8 percent from 2020 to 2022.
Previously, the DBCC targeted goods
exports for 2018 to 2022 to expand by 9 percent while the import bill was
expected to go up by 10 percent.
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