Slowest growth in 4 years
The impressive economic growth trajectory of the Philippine economy looks headed for some setback this year for reasons that are both domestic and external.
The Philippine Statistics Authority (PSA) reported last week that the economy grew by a disappointing 5.5 percent in the second quarter, slower than the 6.2-percent expansion in the gross domestic product (GDP) a year ago and the slowest in more than four years. First-quarter GDP expansion already fell to a four-year low of 5.6 percent.
The main culprit has been the delayed approval of the 2019 budget that prevented the government from spending P1 billion a day on public goods and services at the start of the year. President Duterte signed the P3.7-trillion 2019 national budget only in mid-April, because the two chambers of Congress squabbled for months over “pork” funds. There was also a public works ban in the run-up to the May midterm elections.
It also did not help that the agriculture sector’s output in the second quarter shrank by 1.27 percent, due mainly to the 5.7-percent decline in the production of crops caused by the El Niño dry spell.
The second half of 2019 doesn’t look that promising, either. While Malacañang has sought to assure the public that the slowdown in the country’s economic growth is just temporary, economists have started lowering their forecasts for the remainder of this year. Experts seem to agree that actual GDP growth for the whole of 2019 would end up below the government’s target of 6-7 percent.
International credit-rating agency Moody’s Investors Service, which last June indicated that the GDP numbers for the second quarter could disappoint, further cut its 2019 growth forecast for the Philippines to 5.8 percent from 6 percent previously.
London-based Capital Economics also reduced its growth forecast for the year to 5.8 percent from 6 percent earlier. It noted that while it expects a recovery in the Philippines’ GDP growth in the second half of this year, it doesn’t believe it would be that strong, noting that the economy still faces a number of headwinds.
United Kingdom-based Oxford Economics likewise lowered its Philippine growth projection to 5.7 percent from 5.9 percent, although it pointed out that the second-quarter GDP growth could be the low point for this year, as the contraction in public spending was due to temporary administrative delays that should be gone by the second half. However, it also warned that escalating trade tensions between the United States and China will be a key risk in the outlook as Philippine exports are expected to remain under pressure.
The external environment is indeed expected to remain tough for the remainder of 2019. Economists agree that global growth will weaken further in the coming quarters given the worsening US-China trade war. However, the economic story of 2019 may prove to be just a hiccup as the macro-economic fundamentals of the country — a strong consumer base, healthy foreign exchange reserves, low inflation and declining interest rates, and the reliable inflow of dollars from Filipinos working overseas and the business process outsourcing sector — remain positive factors that can sustain economic growth moving forward, despite global economic troubles.
Moody’s has also pointed out that the country’s momentum for fiscal reform has been sustained, raising prospects for a further improvement in the Philippines’ fiscal position. Herein comes the big role that Congress needs to play again. Pending before it are additional tax reform packages designed not only to boost government revenues, but also to simplify the overall tax regime. It is incumbent upon Congress to act on those reforms in a timely and transparent manner — to debate their merits fully but with dispatch, and engage all stakeholders to ensure that the measures’ enactment results in the least disruption among covered sectors.
This early, Congress should also begin working on the approval of the 2020 budget on time, to prevent a repeat of the ruinous impact on government spending that the delay in the passage of the 2019 budget caused. The disappointing economic numbers for the first two quarters of 2019 should serve as a forceful reminder to legislators that the national interest should come first before their own.
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