GDP growth in 2017 expected to top 6.7% — NEDA

THE ECONOMY will not hit 7% growth this year, but could do so in 2018 as infrastructure spending gains traction, Socioeconomic Planning Secretary Ernesto M. Pernia said.

Mr. Pernia made the remarks in forecasting 2017 gross domestic product (GDP) growth of “at least 6.7%” but added that fourth quarter growth of 8% or more is needed to bring the full-year average over the 7% mark. The 7% level represents the midpoint of the government’s forecast range of 6.5%-7.5%.

Economic growth averaged 6.7% in the nine months to October.

“It will probably not hit 7%, because to hit 7% we have to grow by 8% (in the third quarter). 8% is pie-in-the-sky,” Mr. Pernia told reporters during the National Economic and Development Authority’s (NEDA) year-end press briefing.

The government target band for 2018 is 7-8%.

Mr. Pernia said he expects fourth quarter growth higher than 6.7%, leaving open the possibility of upside to match or surpass the 6.9% posted in the third quarter.

“I think Q4 will be a bit higher than 6.7%. I just want to be modest,” Mr. Pernia said.

He said government spending, exports, improved agriculture output and consumer spending will be the drivers this quarter.

He said 2018 could be the year growth tops 7% due to stepped-up infrastructure spending.

“I think we’ll enter 7% territory next year, for the full year. If the global economy stays buoyant, that will be a plus to our exports. And then government spending will surely be ramped up,” Mr. Pernia said.

Mr. Pernia said big-ticket infrastructure projects due to be rolled out next year include the Clark airport expansion, the Metro Manila subway, the Philippine National Railway ( PNR) commuter line, the Malolos- Clark PNR extension, the first phase of the Mindanao Railway, the Chico River Dam, the Kaliwa New Centennial Water Source project, and the Cavite Industrial Flood Management project.

Asked whether the Mindanao martial law extension to the end of 2018 will affect to the economic outlook, Mr. Pernia said that it would be “neutral at worst.”

“It could boost investor confidence… ( it) seems to be well managed. We did a before-after analysis, it was more positive than negative really. With martial law it’s easier to move things because they are really safer from attacks,” he said.

Asked for his assessment of the main risks in 2018, Mr. Pernia cited global monetary policy tightening, weather disturbances, the impact of artificial intelligence on the Philippine labor market, and Middle Eastern disruptions that could dampen remittances.

Separately, Swiss bank UBS AG said it expects Philippine GDP growth to hit 6.8% in 2018, with a buoyant domestic economy possibly dampened by softer global demand.

It said reforms embodied in the new tax regime and aggressive infrastructure spending will play a crucial role in sustaining robust growth for the Philippines next year, with recent political events unlikely to dampen the economy’s prospects.

Its view for 2017 is 6.7% growth.

If the 2018 estimate pans out, the Philippines will remain one of the fastest-growing economies in the region, it said.

“What is driving this stronger domestic economy? We think it is government reform,” UBS economist Alice Fulwood said in a conference call yesterday. “Our headline scenario for next year is that we expect the government to be largely successful in its economic policy aim.”

UBS draws its optimism from the approval of the first tranche of the tax reform plan on Wednesday evening, which will take effect on Jan. 1, 2018 once signed into law by President Rodrigo R. Duterte.

The bank expects additional revenue drawn from the bill to amount to 0.5-1% of GDP, which in turn will support the P8.4trillion infrastructure program.

“We think the government will be able to increase the fiscal deficit to 3% of GDP in 2018 by ramping up infrastructure spending,” Ms. Fulwood said as she acknowledged that spending is assured to be “significantly higher.”

The government is looking to spend over P1.17 trillion next year — a “challenging” target, she said.

The peso is expected to weaken further by next year — possibly touching P54 against the dollar — with increased imports and higher inflation to widen the current account deficit, which will sustain the “underperformance” of the peso compared to regional currencies.

Still, the growth path is expected to remain resilient despite some political noise, Ms. Fulwood added: “So far, my impression of the Duterte administration is that he has a well-structured economic team behind him and these have been driving the key economic reforms.”

“In terms of the more political side of his presidency, they don’t appear to be posing too great a risk to the economy at present… People still seem to have bought into his economic mandate,” the economist added.

However, Ms. Fulwood said that an “extreme” escalation of events could affect the outlook.

Congress has agreed to extend military rule in Mindanao until December 2018 at Mr. Duterte’s request, after Marawi City was declared free of terrorists in October.

The House of Representatives is also tackling an impeachment complaint against Supreme Court Chief Justice Ma. Lourdes P.A. Sereno, and is in discussions to amend the 1987 Constitution.

The Asian Development Bank on Wednesday raised its growth forecasts for the Philippines to 6.7% this year and 6.8% in 2018, premised on an acceleration in public spending. —