Silver lining for PH economy seen amid Q2 slowdown

It forecasts a 6.5 percent output for the economy this year and 6 percent in 2019. These figures, however, are lower than the government’s 7 to 8 percent target until 2022. (Pixabay photo)

MANILA — The Philippines’ Gross Domestic Product (GDP) growth slowed down to only 6 percent in the second quarter of 2018 but some analysts remain optimistic about its expansion potential in the coming years.

In a research note released following news of the economy’s reduced second quarter performance, economic research firm Capital Economics said it still expects the Philippines “to perform relatively well over the next year or so.” Economic growth the previous quarter was more robust at 6.6 percent.

It forecasts a 6.5 percent output for the economy this year and 6 percent in 2019. These figures, however, are lower than the government’s 7 to 8 percent target until 2022.

Domestic demand is seen to be a major growth driver on back of the government’s massive infrastructure program investment, which is targeted to increase to 5.3 percent of GDP this year to 6 percent by 2020.

Capital Economics also projects improvement of export’s contribution to domestic output.

Exports rebounded in the second quarter this year but imports posted higher growth, sustaining its course since the past few years, given the rising domestic demand in line with strong GDP growth.

“Although we are expecting a gradual slowdown in global demand over the next year, our forecasts for the world economy are still consistent with fairly strong export growth from the Philippines,” the report added.

Relatively, ING Bank Manila senior economist Joey Cuyegkeng said “there is also a silver lining” amid the economy’s lackluster performance in the second quarter of 2018. The silver lining was traced to still robust domestic demand, with household spending up year-on-year by 5.6 percent and business spending rising by 20.7 percent.

Cuyegkeng said the 11 percent growth of government spending is also a plus along with the 6.6 percent expansion of the service sector and 6.3 percent rise of the industry sector.

He, however, noted that downside risks remain and these include the rise of inflation rate, which, in turn affected household spending.

Last July, rate of price increases rose to multiyear high of 5.7 percent from month-ago’s 5.2 percent due to faster inflation of the food and non-alcoholic beverages index.

Inflation in the same month last year is lower at 2.

4 percent while average inflation to date stood at 4.5 percent, higher than the government’s 2 to 4 percent target until 2020.

Monetary officials expect elevated inflation levels this year but project this to go to within-target levels in 2019.

Cuyegkeng added that higher growth of exports over imports is another factor seen to slow growth and this situation is expected to continue vis-à-vis the rising domestic demand.