The Asian Development Bank (ADB) has cut to 6.2 percent its 2019 growth forecast for the Philippines mainly due to government underspending at the start of the year which dragged first-quarter economic expansion to a four-year low.
This was contained in the Manila-based multilateral lender’s Asian Development Outlook Supplement report released Thursday.
Its previous growth forecast for the country was 6.4 percent.
The same report showed that the ADB kept its 2020 growth forecast for the Philippines at 6.4 percent.
Its 2019 forecast matched the actual 6.2-percent expansion posted last year, which was the slowest in three years.
“Growth moderated in the Philippines from 6.3 percent year-on-year in the fourth quarter of 2018 to 5.6 percent in the first quarter of this year as the delayed passage of the national budget held back government spending. Public construction contracted by 8.6 percent while growth in government consumption eased from 12.6 percent year-on-year in the fourth quarter of 2018 to 7.4 percent in the first quarter of 2019,” the ADB noted.
“Growth in exports of goods and services also slowed as a result of lackluster global trade and economic activity and the downturn in the electronics cycle. These effects were partly offset by higher household consumption and private investment,” it added.
To recall, President Duterte signed the P3.7-trillion 2019 national budget only in mid-April as the two houses of Congress earlier squabbled over “pork” funds.
As a result, the government operated using reenacted 2018 appropriations in the first four months and underspent about P1 billion a day on public goods and services.
First-quarter GDP growth fell below the government’s downgraded 6-7 percent full-year target range.
In the meantime, the ADB expects inflation to ease to 3 percent this year given the “lower food prices.” The inflation forecast is lower than its earlier projection of 3.8 percent and below the 10-year high 5.2 percent recorded in 2018.
“Inflation in the Philippines slowed to 2.7 percent in June, averaging 3.4 percent in the first half. Rice prices have declined on improved supply since the lifting of quantitative restrictions on rice imports in February,” it said.
However, the ADB sees headline inflation next year at a higher 3.5 percent, maintaining its earlier forecast due to “an expected pickup in global commodity prices.”
The ADB’s inflation forecasts for 2019 and 2020 were still within the government target band of 2-4 percent.