Dutch financial giant ING Bank reduced the 2018 growth forecast for the Philippines to 6.3 percent from an earlier estimate of 6.8 percent, following the lackluster and lower-than-expected gross domestic product expansion of 6 percent in the second quarter.
Economists pointed to the closures of Boracay island and some mining operations, stagnant agriculture sector, trade imbalance and high inflation as among the factors that contributed to the sluggish performance in April to June.
ING Bank Manila senior economist Joey Cuyegkeng said in a report over the weekend that household spending growth moderated to 5.6 percent from 6 percent in the same period last year.
“High inflation and weak agriculture production [rising 0.2 percent YoY in the second quarter from last year’s 6.3 percent] weakened purchasing power and restrained household spending,” he said.
Cuyegkeng said the “6-percent growth is still respectable.”
He said the moderation in household spending was also seen in slower manufacturing growth of 5.6 percent in the second quarter from 8 percent last year.
A higher take-home income from income tax reform offset the combined impact of high inflation and weak agriculture output, he said.
Cuyegkeng said the downside surprise came from a deterioration of the trade sector. The high import growth coupled with weaker export performance weighed on overall GDP growth, he said.
He said strong imports were a manifestation of strong domestic demand. He said a strong private sector performance and the government’s aggressive infrastructure catch-up program contributed to the worsening trade imbalance while exports remained weak despite the multi-year weakness in the Philippine peso.
“We cut our forecast for 2018 GDP growth to 6.3 percent from our earlier forecast of 6.8 percent,” Cuyegkeng said.
The government earlier said the economy was expected to expand between 7 percent and 8 percent this year, driven by higher fiscal spending, robust domestic demand and investments.
GDP grew 6.6 percent in the first quarter, before posting a more moderate growth of 6 percent in the first quarter. This brought GDP growth in the first half to 6.3 percent, below the government’s target range of 7 percent to 8 percent.
Inflation in the first half averaged 4.3 percent, above the target range of 2 percent to 4 percent this year. Inflation accelerated to a five-year high of 5.7 percent in July from 5.2 percent in June, bringing the first seven months’ average to 4.5 percent.
The Philippine economy expanded 6.7 percent in 2017, one of the fastest in the Asian-Pacific region.