World Bank downgrades Philippine GDP outlook on delayed budget, looming drought

02, Apr. 2019

MANILA, NNA – The World Bank has slightly revised down its growth forecast for the Philippines in the next three years, due to the delay in the approval of the budget and looming drought.

The Washington-based multilateral lender released its Philippine Economic Update for the first quarter on Monday.

Key Points:

―― The World Bank expects the Philippine economy to grow 6.4 percent in 2019, down from its previous forecast of 6.5 percent. It also forecast GDP will expand 6.5 percent in both 2020 and 2021, compared with 6.6 percent projected previously.

―― On the domestic front, the delay in the 2019 budget approval process has prompted the government to operate on a re-enacted budget, which means no new funding for public programs and projects. This has led the government to revise down its growth forecast for 2019 from 7 to 8 percent to 6 to 7 percent.

―― “An intensified El Nino may lead to food supply constraints, affecting the poor and vulnerable the most as they are spending relatively larger proportion of their income in food,” Rong Qian, World Bank’s senior economist for the Philippines, told a briefing.

―― El Nino is caused by the warming of sea surface temperature in the Pacific and can affect air and sea currents. This could reduce rainfall and cause dry spells. But Manila says severe weather conditions would have only a limited impact on the GDP as the farm sector made just 0.1 percent contribution to the economy in 2018.

―― “The external risk is mainly the U.S. and China trade dispute that continues to create uncertainty in the global market,” Qian said. “The channel through which external risks may impact the growth in the Philippines is the tightening financial condition.” A capital outflow could be volatile, which would hurt the Philippine GDP and currency, she added.

Takeaway:

―― Despite the downgrade, the World Bank said the Philippines’ growth outlook remains positive as private consumption in the second quarter is expected to recover due to the decline in inflation, and the increase in government spending ahead of the general election on May 13.

―― Assuming the budget is approved soon, public investment spending should also recover in the second quarter.