State spending to sustain GDP growth

THE Organization for Economic Cooperation and Development (OECD) sees Philippine economic growth sustaining its 2017 growth pace until next year on the back of government spending that will take up the slack from weaker private consumption and export growth.

The OECD expects Philippine gross domestic product (GDP) to grow 6.7% this year and in 2019, falling short of the government’s 7-8% targets for these two years but still faster than a 5.3% forecast for Southeast Asia in the same periods and the 6.6% and 6.5% averages for 2018 and 2019, respectively, for “emerging Asia,” a group that covers the 10 members of the Association of Southeast Asian Nations (ASEAN) plus China (6.7% this year and 6.4% next year) and India (7.4% this year and 7.5% in 2019).

All three less developed ASEAN members — Cambodia, Laos and Myanmar — will lead regional growth, but among the seven bigger ASEAN economies, only Vietnam will grow faster than the Philippines at 6.9% this year and 6.6% in 2019.

“The Philippines is estimated to replicate its 2017 GDP growth of 6.7% in 2018 and in 2019,” the OECD said in its preliminary report for the Economic Outlook for Southeast Asia, China and

India 2018 – Update that follows the 2018 report presented at the ASEAN-East Asia Summit in Manila in November last year.

“Government spending and public investment will likely anchor economic growth, with private consumption facing some friction and exports substantially weakening.”

The Philippines’ latest estimates are faster than the 6.4% average forecast for 2018-2022 which the Paris-based organization gave in November last year.

Propelling state spending potentially faster, the bi-annual report added, would be front-loaded disbursements ahead of next year’s mid-term national elections.

“Upcoming regional events are likely to increase countries’ motivation to implement and complete infrastructure projects. Several elections are expected in the near term. Public investment in democracies tends to peak 21-25 months before elections, including through the

construction of high-visibility projects ready to be built,” OECD said.

“Planned upcoming general elections… in the Philippines in May 2019… are likely to provide additional incentives to announce and deliver on infrastructure projects.”

The OECD’s latest forecast for the Philippines matches the World Bank’s 6.7% estimate for 2018 and 2019, but is slower than the Asian Development Bank’s and United Nations Economic and Social Commission for Asia and the Pacific’s 6.8% and 6.9% projections for the same two years.

It also compares with Moody’s Investors Service’s 6.8% estimate for 2018, Fitch Rating’s 6.8% for 2018 and 2019 and S&P Global Ratings’ 6.7% and 6.8% for the same two years, respectively.

CONFIDENCE

Noting that “[t]he acceleration in GDP growth was propelled mainly by government spending, which rose by 13.6%, from 0.1% a year earlier” while “growth in private spending, fixed investment and gross exports weakened during the period,” OECD said: “A similar pattern seems likely in the coming quarters.”

“Government consumption is expected to remain buoyant; revenue intake is on track to surpass targets, as seen in the first four months of 2018,” the group added, noting that investment has “room to grow faster than before,” but will depend on agencies’ efficiency in implementing projects.

The OECD noted that the record $10-billion foreign direct investment net inflows to the Philippines in 2017 were “indicative of well-grounded investor confidence presumably due to optimistic economic prospects and the strong infrastructure campaign.”