ADB cuts Philippine growth forecast to 6.4% in 2018, 6.7% in 2019

September 26, 2018

The Asian Development Bank (ADB) has revised downward its growth projection for the Philippines this year and next year due to moderation in agricultural output and exports, higher inflation and continued global monetary tightening.

In an update of the Asian Development Outlook, ADB Country Director for the Philippines Kelly Bird said gross domestic product could grow 6.4 percent for this year and 6.7 percent in 2019.

The new forecasts revised the ADO in April, which were 6.8 percent in 2018 and 6.9 percent next year.

"The growth outlook has softened somewhat since ADO 2018 was published in April as agriculture became sluggish, export prospects moderated, inflation exceeded expectations, and concomitant monetary tightening occurred," the Manila-based multilateral agency said in its report.

ADB's GDP growth outlook was lower than the government's target of 7-8 percent for 2018 up to 2022.

The ADB updated report said one of the factors, which affected growth prospects, was the moderate export growth.

While the Philippine exports to China, Southeast Asia, and the United States increased in the first half of this year, exports to Japan "declined by a steep 17.7%," it said.

About 15 percent of Philippine exports go to Japan.

Asked if ADB expects a continuous decline of exports to Japan, Bird said, "I don't think the trend will continue."

He said the significant fall of exports to Japan was due to "very high growth rate last year...it's cyclical."

Meanwhile, the latest ADB report said that Philippine inflation is expected to average 5 percent in 2018, higher than the earlier forecast of 4 percent and exceeding the government's target range of 2-4 percent.

"Rising global commodity prices should maintain inflationary pressures," it said.

However, ADB expects inflation to moderate in 2019 to 4 percent due to monetary tightening, removal of administrative constraints and non-tariff barriers on food imports and implementation of productivity enhancement programs for agriculture.

The lending agency warned of external risks, which could affect its outlook, such as unexpectedly swift US interest rate tightening, heightened volatility in international financial markets, as well as the resulting shocks from uncertain trade policy in some advanced economies.

Meanwhile, Malacanang admitted it was not surprising that the economy could slow down.

"We expected this slowdown vis-à-vis our growth target for the year, given that certain policy decisions, such as the closure of Boracay and the full implementation of our comprehensive tax reform package which would benefit the country in the long-run, contributed to the deceleration," Presidential Spokesperson Harry Roque said.

But he assured the public that the macroeconomic fundamentals are resilient, strong and stable. Celerina Monte/DMS