Think tank trims GDP growth forecast to 6.4%

Barcelona-based think tank FocusEconomics has slashed the gross domestic product (GDP) growth forecast for the Philippines to 6.4 percent instead of 6.5 percent this year due to the impact of the terrorist attacks in Mindanao.

The think tank said the main downside risks stem from possible capacity constraints and the spillover effects of a possible worsening of the Islamist insurgency in Mindanao.

Members of the Maute Group, aided by some alleged foreign terrorists, launched a series of attacks in Marawi City last March 23 prompting President Duterte to issue Proclamation 216 “Declaring a state of martial law and suspending the privilege of writ of habeas corpus in the whole of Mindanao.”

The martial rule in Mindanao has been extended for six more months or until the end of the year.

Weak private consumption due to the absence of election-related spending pulled down the GDP growth of the country to 6.4 percent in the first quarter.

Despite this, economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC) retained the GDP growth target at 6.5 to 7.5 percent this year from 6.9 percent last year.

The think tank, however, retained next year’s GDP growth forecast at 6.4 percent next year.

“The economy should continue to grow robustly this year and next, supported by buoyant domestic demand, a strengthening external sector and broad macroeconomic stability,” it added.

It pointed out the ongoing decline in the public debt-to-GDP ratio and a sustainable fiscal deficit guarantee room-for-maneuver in case of an unexpected downturn.

“The economy remains on a firm footing, underpinned by solid macro fundamentals and an improvement in the external environment,” Focus Economics said.

The think tank explained merchandise exports expanded at a double-digit rate of 13.7 percent for the fifth consecutive month in May, strongly benefiting from rising demand from main trading partners in Asia.

It said the country’s widening trade deficit mainly reflect higher imports of capital equipment, which bodes well for the ongoing diversification of the economy.

Focus Economics said the Duterte administration is also supporting growth through an ambitious capital spending plan through the Build Build Build scheme.