By Business Mirror, April 2 2019

Image Credit to CNN Philippines

THE pace of the country’s economic expansion will be slowed by the delay in the passage of the 2019 budget and the impact of El Niño on food supply, the World Bank said on Monday.

The economic headwinds facing the country prompted the World Bank to revise downward its GDP forecast for the Philippines for 2019, 2020 and 2021.

The Washington-based lender estimated Philippine GDP growth for 2019 at 6.4 percent, and 6.5 percent for 2020 and 2021. It initially projected that economic expansion will be at 6.5 percent this year, and 6.6 percent in 2020 and 2021.

“The delay in approving the 2019 budget and the preelection spending ban on new public construction projects are expected to slow down public investment spending in the first half of the year, but [the latter] is expected to recover toward the second half of 2019 assuming that the budget gets approved very soon,” World Bank Senior Economist Rong Qian told reporters in a press briefing.

“Export growth is likely to remain weak, as global growth and trade activities are projected to moderate in the medium term,” Qian added.

She said a reenacted budget means “no new programs and projects will receive funding.” This will cut government spending—a key driver of the Philippine economy.

The Duterte administration is keen on spending around P7 trillion to P8 trillion on various infrastructure projects in the medium term. The budget will finance 75 flagship projects and over 4,000 projects identified in the Public Investment Program (PIP) until 2022.

Adding pressure to the economy, Qian said, is El Niño, as this could cut food supply and lead to higher inflation. She said this does not bode well for the poor as they usually bear the brunt of higher commodity prices.

“An intensified El Niño may lead to food supply constraints, affecting the poor and vulnerable the most as they are spending a relatively larger proportion of their income in food. For instance, last year when food prices reached 5.2 percent on average, people from the first quintile [the poorest 20 percent of the population] faced 6.2 percent with over 60 percent of that driven by food inflation,” Qian said.  Earlier, UP School of Statistics Dean Dennis Mapa said the increase in food inflation, especially for the poorest 30 percent, reached 7.1 percent last year.

High food prices in 2018 will have a negative effect on poverty reduction efforts. Food inflation felt by the poorest Filipinos reached 7.1 percent in 2018 with the highest observed in September at 9.9 percent.

In a study, Mapa said every 1-percentage-point increase in food inflation causes a 0.68-percentage-point increase in self-rated hunger incidence.

The 2018 data of the Social Weather Stations for self-rated hunger incidence increased by 10 percentage points, particularly for the second and third quarter. This was largely because the acceleration of food prices was the fastest during the two quarters.

The World Bank said, however, that the “bright spots” in the Philippine economy will ensure that growth will be above 6 percent.

“Higher private consumption due to lower inflation, steady growth of remittances and election spending will fuel growth this year,” said Mara K. Warwick, the World Bank country director for Brunei Darussalam, Malaysia, the Philippines and Thailand.

The Philippine GDP has been fueled by consumption, with households contributing more than two-thirds of aggregate expenditures.

Annual private consumption growth declined from 5.9 percent in 2017 to 5.6 percent in 2018 due to high inflation. However, it is expected to rebound to 5.9 percent in 2019 and 6 percent in 2020 due to declining inflation and the continued job generation in the economy.

Remittances are expected to remain steady as new employment opportunities for Filipinos become available in countries like Japan, Germany and Poland, further fueling consumption.