Fitch cuts Philippines growth forecast

by Lawrence Agcaoili (The Philippine Star) – Apr 25, 2019

MANILA, Philippines — Fitch Ratings has slashed the country’s gross domestic product (GDP) growth forecasts for 2019 and 2020 due to the delayed passage of the 2019 national budget, the series of rate hikes by the Bangko Sentral ng Pilipinas (BSP) and the trade war between the US and China.

In a report, Fitch Ratings said the Philippine economy may grow by only 6.2 percent instead of the original growth forecast of 6.6 percent for this year.

For 2020, Fitch lowered its growth forecast to 6.3 percent from the original target of 6.6 percent.

The Philippines recorded a slower GDP growth of 6.2 percent in 2018 from 6.7 percent in 2017, missing the lowered 6.5 to 6.9 percent target set by government economic managers.

“Fitch has revised down its GDP growth forecast for 2019 to 6.2 percent from 6.6 percent, as it expects the recent budget delay and external factors to weigh on growth,” it said in a report.

The national government operated on a re-enacted budget as President Duterte only signed the proposed P3.7 trillion budget under Republic Act 11260 or the General Appropriations Act for Fiscal Year 2019 last April 15.

“We anticipate the budget delay to undermine public capital spending, which has been a key growth driver under the current government. The 2019 budget was due by end December 2018, but passage was delayed to April,” Fitch said.

Furthermore, the rating agency also cited the trade war between the US and China that could further aggravate the performance of the country’s export sector.

“In addition, we expect exports to be affected by the ongoing trade tensions between the US and China, and the slowdown in China,” Fitch said.

According to the Philippine Statistics Authority (PSA), the country’s trade deficit swelled by nearly 52 percent to a record high of $41.44 billion last year from $27.38 billion a year ago as exports contracted by 1.8 percent to $67.49 billion from $68.71 billion, while imports grew by 13.3 percent to $108.93 billion from $96.09 billion.

“We expect import growth to slow in 2019 based on our view that oil prices are likely to decline and infrastructure spending to slow,” Fitch said.

The credit rating agency said the Philippines is likely to book a current account deficit equivalent to 2.4 percent of GDP in 2019 and 2020 as lower growth in imports is likely to be countered by weaker export performance.

Furthermore, Fitch explained the monetary tightening cycle that saw interest rates rise by 175 basis points from May to November to prevent inflation from spiralling out of control also contributed to the slowdown.

“Slowing growth and interest rate hikes totalling 175 basis points by the central bank in 2018 have caused overheating pressures to subside,” it said.

Fitch also cited the slower growth in remittances from Filipinos living and working abroad.