By Lee C. Chipongian
The Singapore-based ASEAN+3 Macroeconomic Research Office (AMRO) has revised its 2019 Philippine growth forecast lower from 6.4 percent to 6.3 percent after the disappointing below-six percent first quarter GDP growth.
AMRO chief economist, Dr. Hoe Ee Khor, however said that they are keeping their “robust growth” outlook for the country and expect the economy to catch-up again in the second half of the year.
The updated ASEAN+3 Regional Economic Outlook (AREO) 2019, first released in early May, also estimates GDP growth of 6.5 percent for 2020. “As growth headwinds is on the rise, the policy emphasis can be oriented more toward supporting growth,” the report said.
“(GDP) growth slowed down unexpectedly (in the first quarter) but we expect it to bounce back,” Khor told a press briefing Wednesday. “I think there’s scope for the central bank to ease, the question is timing, when to do it,” he said. “The BSP has raised interest rates by 175 basis points (bps, in 2018), it’s quite a big increase when inflation was very high and (to prevent) second-round effects and provide anchor for inflation… and now inflation is coming down rapidly.”
Using AMRO readings, Khor said that the current BSP rate is above the intra rate. “So there’s a gap… that gap provides the central bank space to ease (key rates).”
“So, our view is when do you ease depends on how the economy is performing,” he added. “And, if the economy is doing well, there’s no need for the central bank to cut.”
Khor said they continue to be optimistic about GDP growth and fully support the BSP’s decision to cut benchmark rates by 25 bps in the last Monetary Board meeting. But, he said, “whether there’s a need for further cut or not will depend on the economy moving forward and how inflation (will do).”
The BSP meets today (Thursday) for its fourth Monetary Board policy meeting for the year. The market consensus is that it will continue its policy easing with a manageable inflation that is expected to keep within the two-four percent target in the next two years.
Khor said policy mix in the region is “broadly appropriate with some recalibration to support growth.” There’s some room to ease policy given benign inflation but for economies with external vulnerabilities, to hold current policy settings.
AMRO’s regional growth forecast for ASEAN+3 was also revised lower to 4.9 percent for 2019 and 2020 from the previous 5.3 percent.
Khor, referring to the AREO, said if the US-China trade war escalates further, they see regional growth further dropping to 4.7 percent for 2019 and 2020. The “re-escalation of global trade tensions and earlier policy support” will contribute to the moderate growth of below five percent.
For the Philippines, Khor said the impact is not significant, echoing the same sentiments previously expressed by BSP officials. He said initially, their estimate is that the impact of the US-China trade war will only have a -0.06 percentage point impact on the local GDP growth.
BSP Deputy Governor Diwa C. Guinigundo, for his part, said that they “agree with the assessment of AMRO… (and) for the last 20 years we believe we’ve been doing the right things, the right way” in terms of BSP policies in inflation management and balancing that with growth. The BSP has also put in place effective macro prudential measures that have almost insulated it from the worse impact of external shocks, particularly in recent global financial crisis.
Guinigundo said that the Philippines and the region are in “very challenging” regional and global landscapes at the moment and some of these challenges are focused on the US-China trade war. He noted the short-term risks which could be alarming and growth headwinds are rising. But, he said there is flexibility for monetary and fiscal policy.