MANILA, Philippines — Philippine policymakers have slashed their 2018 growth forecast for the economy amid high inflation, which they expect to remain elevated this year before easing in 2019.
At the end of its 174th meeting, the Cabinet-level Development Budget Coordination Committee adjusted its gross domestic product growth target range to 6.5-6.9 percent for 2018, lower than their initial estimate of 7-8 percent.
Related Stories
Economic growth targets for 2019 and 2022 were unchanged.
Meanwhile, the DBCC now sees inflation averaging 4.8-5.2 percent this year and 3-4 percent next year, higher than their previous projections. Inflation forecast for 2020 until 2022 is kept at 2-4 percent, with soaring prices seen going back to the government’s target band by next year.
“We have revised the government’s medium-term macroeconomic assumptions for 2018 to 2022 to reflect developments at the national and global level, including higher world oil prices, tightening of monetary policy in advanced economies, and higher domestic inflation,” the DBCC said.
Inflation bites
The Philippines had enjoyed uninterrupted growth in the past quarters, thanks to benign inflation in the previous years that had given the central bank enough room to keep interest rates low.
But in the second quarter of 2018, the economy slowed down to a three-year low of 6 percent, which the government's chief economist attributed to “spoiler” inflation.
"We feel we can still achieve up to 6.9 percent [GDP growth in 2018] with a lot of prayers by you guys and also given the measures that we are pushing for spurring economic growth in the coming months," Socioeconomic Planning Secretary Ernesto Pernia told reporters.
Inflation surged to a fresh nine-year high of 6.7 percent in September, spurring calls for another interest rate hike to anchor elevated inflation expectations and temper consumer demand that could have lifted prices.
Some analysts expect economic growth to continue to decelerate over the second semester of the year as tighter monetary policy and higher inflation weigh on consumer spending, which accounts for about seven-tenths of the Philippine economy.
The Asian Development Bank, the International Monetary Fund and the World Bank have recently downgraded their growth projections on the Philippines as high inflation bites.
Prices began soaring at the start of the year after the government slapped higher excise taxes on fuel and other commodities. The price hikes quickly spread to cover more goods, worsened by a weakening currency and rising global oil prices.
Other revisions
The DBCC expects price of Dubai crude — used as a benchmark for Asia — to average $70-75 per barrel this year and $75-85 next. This range is forecast to drop to $70-80 a barrel in 2020, before declining to as low as $65-75 for 2021 and 2022.
READ: DOF to suspend fuel tax hike | DOF: Suspension of fuel tax hike announced early 'to anchor inflation expectations'
Revenue collections are projected to hit P2.820 trillion in 2018, lower than the original P2.846 trillion revenue program for the year. The Tax Reform for Acceleration and Inclusion law is expected to contribute P63.3 billion.
Seeing lower revenues this year, the DBCC predicts state spending to reach P3.346 trillion from the initial program of P3.370 trillion.
The Duterte administration targets to attain upper-middle income status by end-2019 and reduce poverty from 21.6 percent in 2015 to 14.0 percent in 2022.