April 25, 2019
Fitch Ratings has slashed its 2019 Philippine growth forecast, tagging the delayed approval of the national budget and outside circumstances as reasons for the adjustment.
“Fitch has revised down its GDP (gross domestic product) growth forecast for 2019 to 6.2 percent from 6.6 percent previously, as it expects the recent budget delay and external factors to weigh on growth,” the debt watcher said in a report released on Wednesday.
The projection matches last year’s actual growth and falls near the lower end of the government’s downwardly-revised 6.0-7.0 percent target.
Fitch said the budget delay was expected to “undermine public capex (capital expenditures) spending, which has been a key growth driver under the current government.”
The 2019 national government budget was only signed last week by President Rodrigo Duterte following months of delay — caused by a dispute between the Senate and the House of Representatives over alleged insertions that were ultimately vetoed by Duterte.
The controversy forced the government to operate on last year’s budget since the start of the year, which meant that it could only spend for items detailed in the 2018 outlay and not on programs and projects supposed to be implemented in 2019.
The government’s decision to lower this year’s GDP growth goal to 6.0-7.0 percent, from 7.0-8.0 percent previously, was primarily based on expectations that the budget delay would extend to April.
Economic managers had also pointed to an ongoing El Niño and the US-China trade war, which Fitch cited as another factor likely to weigh on Philippine growth.
“[W]e expect exports to be affected by the ongoing trade tensions between the US and China, and the slowdown in China,” the ratings firm said.
Philippine exports contracted by 0.9 percent to $5.18 billion in February based on latest official data, resulting in a two-month tally of $10.46 billion — down 3.9 percent from a year earlier.
Fitch also said that “weaker growth in remittances, which slowed to 3.1 percent in 2018 from 4.3 percent a year earlier, will also exert some downward pressure on growth.”
Personal remittances totaled $5.302 billion in January-February, 2.3 percent higher than the $5.182 billion posted a year earlier.
“Slowing growth and interest rate hikes totalling 175bp (basis points) by the central bank in 2018 have caused overheating pressures to subside,” Fitch, nevertheless, pointed out.
The current account is still expected remain in deficit at about 2.4 percent of GDP in 2019 and 2020 “as slower growth in imports is likely to be countered by weaker export performance.”
“We expect import growth to slow in 2019 based on our view that oil prices are likely to decline and infrastructure spending to slow,” it added.
Imports grew by 2.6 percent to $7.97 billion in February, boosting the year-to-date tally to $17.17 billion — 3.1 percent higher year on year.
The current account hit an all-time deficit of $7.9-billion last year — equivalent to 2.4 percent of GDP — as imports far outpaced exports.
Lastly, Fitch also trimmed its 2019 government revenue-to-GDP estimate to 16.2 percent from 16.5 percent in line with the lower growth forecast.
“However, the agency expects the government’s deficit to stabilize at around 3.2 percent of GDP, as we think the budget delay is also likely to lead to lower government spending in 2019,” it said.
The government has set a deficit-to-GDP ceiling of 3.2 percent this year. It posted a 3.2 percent deficit-to-GDP ratio last year, higher than the programmed 3.0 percent.
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