MANILA, Philippines — A strong rebound in growth will be unlikely after slower growth in the first semester of the year as government spending has only begun to recover and exports are expected to be weak, said London-based Capital Economics.
In a research brief, the macroeconomy research firm said growth is expected to clock in at 5.8 percent in 2019 and at six percent in 2020 after a weaker growth of 5.5 percent in the first semester of the year.
Growth is expected to accelerate to 6.5 percent by 2021.
While this would fall below the government’s expectations for the year, it would still make the Philippines among the fastest economies in the region.
Capital Economics noted that while government spending has begun to recover since the passage of the budget in April, growth is still unlikely to get a significant boost from the 2020 budget with an unchanged deficit of 3.2 percent.
“Another drag will come from the export sector. Slowing global growth and rising trade tensions mean exports are likely to remain weak,” said the firm.
On the upside, low inflation will boost the purchasing power of consumers, supporting spending over the coming quarters.
Subdued inflation should also enable the Bangko Sentral ng Pilipinas (BSP) to loosen policy. BSP has already cut its policy rate by 75 basis points this year, partly unwinding 2018’s sharp 175 bps tightening cycle.
“We expect a further 50 bps cuts by the end of next year,” said Capital Economics.
The firm expects inflation to average 2.4 percent this year and 2.8 percent in 2020.
The peso, meanwhile, is expected to strengthen to 54 to a dollar in 2019 and weaken to 57 to a dollar in 2020 throughout 2021.
“The peso has performed well so far this year, helped in large part by a narrowing of the current account deficit. This mainly reflects delays to government infrastructure programs, which has dragged on imports. However, the deficit looks set to widen again as infrastructure spending picks up and exports remain weak,” said Capital Economics.