Philippine economy to remain strong amid global uncertainty, inflation — World Bank

Rising government expenditure for infrastructure should provide the momentum for the Philippine economy to speed up in the second half of 2018 and in early 2019, the World Bank said. (AFP)

• The Philippine economy is poised to remain strong and is projected to grow at 6.5 percent in 2018, 6.7 percent in 2019, and 6.6 percent in 2020
• Rising government expenditure for infrastructure should provide the momentum for the Philippine economy to speed up

DUBAI: The Philippine economy will remain strong despite rising global uncertainty and inflationary pressures, the World Bank said in its the Philippines Economic Update released on Thursday.
“The Philippine economy is poised to remain strong and is projected to grow at 6.5 percent in 2018, 6.7 percent in 2019, and 6.6 percent in 2020,” the multilateral lending agency noted, despite a slowdown during the first half because of weaker electronics exports and lower farm output due to unfavorable weather conditions.
Rising government expenditure for infrastructure should provide the momentum for the Philippine economy to speed up in the second half of 2018 and in early 2019, while private consumption growth, which accounts for about two-thirds of total economic growth will remains strong despite an increase in consumer prices, it added.
“Private consumption is projected to remain strong, supported by a steady labor market, continuous inflow of remittances, and inflation easing,” Rong Qian, World Bank senior economist, said.
Philippine monetary authorities have increased the policy rate four times while measures have been implemented to the ease the importation of food on efforts to manage inflation, which reached 6.4 percent in August. Year-to-date average inflation was at 4.8 percent, compared with 2.8 percent in the same period last year, the highest since 2008 because of a steep rise in food inflation.
“High inflation can affect the welfare of the poor and vulnerable households as they spend over two-thirds of their expenditure on food and transport. This can potentially slow progress on poverty reduction,” Qian said. “While easing up rules for importing food products can help curb inflation, addressing structural challenges in the agriculture sector can help prevent food supply constraints in the future.”
Meanwhile, Birgit Hansl, World Bank lead economist for Brunei, Malaysia, Philippines, and Thailand, commented that the Philippines “has large foreign reserves, flexible exchange-rate, low public debt, and robust remittance inflows.”
“At this juncture, preserving the country’s resilience rests in large part on preventing the current-account deficit from widening too much and too fast,” Hansl added. The Philippines’ current account deficit widened rapidly in the first half of 2018, to 1.9 percent from an average of 0.1 percent in the same period of 2017.
“Even though the Philippines’ current account deficit could be considered as a good deficit because it finances capital goods import to help close the country’s long-due infrastructure gap, and that currently FDI (foreign direct investment) is financing the CA deficit, it would be wise to monitor it closely to prevent it from widening too much and too fast, and have to rely on portfolio flows to finance the gap, which will make the country more vulnerable to external capital flows,” Qian advised.
On the wider region, outlook for developing East Asia and Pacific remains positive with growth expected to be 6.3 percent in 2018, although lower than in 2017 due to the continued moderation in China’s growth as its economy continues to rebalance.
China is expected to slow moderately to 6.5 percent in 2018, after growing faster than anticipated in 2017. Growth in developing EAP, excluding China, is expected to remain stable at 5.3 percent from 2018 to 2020, driven primarily by domestic demand.
In Thailand and Vietnam, growth is expected to be robust in 2018 before slowing in 2019 and 2020 as stronger domestic demand only partially offsets the moderation in net export growth. Indonesia’s growth should be stable, thanks to improved prospects for investment and private consumption. In Malaysia growth is expected to ease, as export growth slows, and public investment is lower following the cancelation of two major infrastructure projects.