Fitch Solutions, the primary distributor of Fitch Ratings content, on Friday kept its lower GDP growth forecast for the Philippines this year at 6.1 percent from 6.2 percent in 2018 as domestic and external headwinds are seen to impact the economy in the months ahead.
“We expect a further tightening of monetary conditions, the likelihood of a re-escalation of global trade tensions, and a deteriorating business environment to weigh on the Philippines’s economic growth momentum,” Fitch Solutions said a day after the release of the 2018 GDP report that showed the economy growing 6.2 percent last year, missing the official target range of 6.5 to 6.9 percent.
Fitch said the strong public investment drive would be insufficient to offset growing external headwinds and weak private investment.
“We at Fitch Solutions reiterate our view that the Philippine economy will struggle to reverse its weakening growth momentum over the coming quarters… ,” Fitch said.
“… We expect overall growth to continue to be negatively impacted by headwinds to private consumption as domestic monetary conditions tighten further over the coming quarters, alongside global rising interest rates,” it said.
It cited the latest consumer expectations survey conducted by the Bangko Sentral ng Pilipinas in the fourth quarter of 2018, showing the leading consumer confidence index for the next three months (first quarter of 2019) dipping to -0.8 percent, and the next 12 months index declining to 10.7 percent.
Fitch further said that a re-escalation of trade tensions would not only disrupt global supply chains and investor confidence, but also weigh directly on China’s economic growth and hence export demand from the Philippines.
“Risks to our growth forecasts in the near-term are evenly balanced. On the upside, the Philippine government could ramp up government spending further and breach the non-statutory budget deficit limit of 3 percent of GDP to achieve its economic objectives,” it said.
On the downside, it said external and geopolitical risks remain pertinent. A significant deterioration in US-China trade tensions and a faster-than-expected rate hiking cycle in the US could trigger a flight to safety, weighing on investment further, it said.
Meanwhile, it said the maritime dispute between Manila and Beijing might damage economic cooperation between the two countries and “could see China pull out of infrastructure investments in the Philippines.”