Growth mainstays in focus for 2018
STRONGER consumption coupled with the government’s infrastructure push will drive economic growth this year, S&P Global Ratings said, as exports are likely to normalize from last year’s record pace.
“After strong export contributions in the middle of 2017, we expect the traditional pillars of growth — consumption and investment — to be in focus in 2018,” the international debt watcher said in its monthly report released yesterday.
“Part of the investment growth will be from the government’s increased push to develop infrastructure, which we expect to raise economic growth in the medium term.”
S&P expects Philippine gross domestic product ( GDP) to expand by 6.5% this year which will keep the Philippines in the ranks Asia’s fastest- growing major economies.
However, the pace will slow from the 6.7% growth recorded in 2017 if realized, and will fall short of the government’s 7-8% target.
Robust infrastructure spending led by the public sector is expected to push economic activity, the credit rater said.
The government plans to spend as much as P1.1 trillion on public works this year, forming part of the P8-trillion program for infrastructure up to 2022, when President Rodrigo R. Duterte ends his six-year term.
State infrastructure spending increased by 15.4% to P568.8 billion last year from 2016, surpassing a P549.4-billion program under the 2017 budget, according to the Department of Budget and Management.
This brought overall spending up by 11% to P2.824 trillion in 2017 and led to a P350.6-billion deficit equivalent to 2.2% of GDP.
A more upbeat consumer market will likewise stoke economic activity.
“The first phase of tax reform is now being implemented and the cut in personal income tax should help private consumption,” S& P said, referring to Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law that took effect on Jan. 1.
TRAIN reduced personal income tax rates for those earning below P2 million annually. The foregone taxes — estimated at P10 billion — will be offset by the removal of some value-added tax breaks; raising fuel, automobile, mineral and coal excise tax rates, as well as adding levies on sugarsweetened drinks and cosmetic surgery.
The TRAIN is expected to raise P82.3 billion in the law’s first year of implementation.
S&P noted that the TRAIN law will cause a “temporary spike” in
inflation due to the new taxes, but will in turn generate additional revenues to support government spending.
Inflation surged to a threeyear high in February at 3.9% under the revised consumer price index.
Strong household consumption and increasing state spending, especially on infrastructure, are expected to help offset slowing growth in merchandise exports after a 10.2% increase in offshore sales of Philippine goods in 2017.
S& P said it does not expect a “significant” widening in the country’s current account deficit — fueled largely by a record trade deficit — but added it remains watchful about volatilities that could affect remittances, oil prices and imports.