Growth to stay domestically-driven

Philippine economic growth will remain strong notwithstanding the impact of challenges that have weighed on consumer demand and state spending, S&P Global Ratings said.

“We maintain our strong outlook for domestically-driven medium term growth, despite key headwinds in the short term, ” the debt watcher said in its latest APAC Economics Snapshots report.

“Consumption growth will likely stay low relative to recent history due to inflation, while the rollout of some non-crucial infrastructure projects will be slower as the government tries to rein in the current account deficit,” it added.

Policy rate hikes implemented to address above-target consumer price growth, the debt watcher said, could also weigh on the demand outlook for next year.

The BangkoSentral ng Pilipinas has raised key interest rates by a total of 175 basis points since May in a bid to contain inflation, which hit a 9-year high of 6.7 percent in September.

Meanwhile, export demand and confidence levels remain under threat from global trade tensions, and the current account deficit continues to make the economy vulnerable to emerging market selloffs, S&P said.

The country’s current account—a major component of the balance of payments—hit a deficit of $3.087 billion in the first half of 2018, equivalent to 1.9 percent of gross domestic product.

“Headline inflation remains elevated but month-on-month inflation readings to have peaked as global oil prices eased and the typhoon impacts on food prices dissipated,” S&P Global noted.

“The liberalization of rice imports and the suspension of the January fuel tax hike will help ease inflation further. Nonetheless, it will take some time for headline numbers to fall back into BSP’s target range [of 2.0-4.0 percent],” it added.

S&P expects the Philippine economic growth to slow to 6.5 percent this year, from 6.7 percent in 2017, before picking up to 6.6 percent and 6.8 percent in 2019 and 2020, respectively, before again easing to 6.7 percent in 2021.

Consumer price growth, meanwhile, was projected to average 5.1 percent in 2018, up from 2.9 percent last year, and then return to the target range at 3.8 percent, 3.5 percent and 3.4 percent, respectively, in 2019, 2020 and 2021.