By Business World, May 23 2019

Image Credit to Business World

SIMMERING trade tensions between the world’s two biggest economies, the United States and China, will weigh on global economic prospects, the United Nations (UN) and the Organization for Economic Cooperation and Development (OECD) reported on Wednesday — a factor that led Fitch Solutions Macro Research to slash its own gross domestic product (GDP) growth projection for the Philippines in particular for this year.

Fitch Solutions said in a May 21 note, titled “Philippine stimulus to only partially offset external drags,” that it expects the country’s GDP expansion to “fall below the government’s 6-7% annual expansion target in 2019, growing by 5.9% (down from a previous 6.1% projection) before rebounding modestly to 6.3% in 2020.” GDP expanded by 6.2% last year, marking the slowest pace in four years.

“Trade tensions and a general softening of external demand will continue to drag on headline growth,” the note read, noting that actual GDP expansion slowed sharply to 5.6% in the first quarter, also the worst performance in four years.

At the same time, Fitch Solutions said it expects that “economic growth will pick up modestly from Q1[20]19 and into 2020, supported by government consumption and still-strong household demand,” while “monetary policy will once again become more accommodative to support growth over the coming quarters.”

In a separate note on the same day, Fitch Solutions said it expects the BSP to fire off another 25-basis-point cut to bring the key policy rate to 4.25% by end-2019 and 25 bps more to four percent next year. “We see scope for a further cut as early as September [26], given the economic and global market backdrop provides some room for further easing.”

A week after cutting policy rates by 25 bps to a 4-5% range, the BSP on Thursday last week also announced a three-phased 200 bsp cut to big banks’ 18% reserve requirement ratio between May 31 and July 26.

In the face of “[e]scalating trade conflicts and dangerous financial vulnerabilities”, Wednesday saw the OECD projecting global economic growth to slow to 3.2% this year from an estimated 3.5% in 2018, before picking up to 3.4% in 2020, and the UN slashing its world growth forecast from January by 0.3 percentage point to 2.7% this year from an estimated three percent in 2018, and its 2020 projection by 0.1 percentage point to 2.9%.

In a press briefing on Wednesday, Sun Life Asset Management Company, Inc. announced a cut in its Philippine economic growth forecast for this year even as it expects the government to accelerate infrastructure spending.

Sun Life Financial Philippines Chief Investments Officer Michael Gerard D. Enriquez said GDP growth will likely clock in at 6.4% this year, still faster than 2018’s 6.2%, but lower than its 6.6% projection as of Sept. 6, 2018.

“Definitely, both private consumption (and) public consumption in terms of government spending will… help accelerate GDP growth for the country,” Mr. Enriquez said, adding that he expects that “policy rate cuts will continue.” — RJNI and KANV