By Cai Ordinario, January 10 2019; Business Mirror

Image Credit to The Guardian

HIGH inflation and slowing private consumption has forced the World Bank to cut its growth forecast for the Philippine economy in 2018 and 2019. 

In the January 2019 Global Economic Prospects, the Washington-based lender said economic growth in 2018 and 2019 is now forecast to reach 6.4 percent and 6.5 percent, respectively. 

The forecast for 2018 was a 0.3- percentage-point reduction from the June 2018 forecast of 6.7 percent, while the 2019 estimate was 0.2 percentage points lower than the Bank’s initial projection. 

“Growth in commodity-importing economies excluding China is moderating. In the Philippines, activity has slowed as surging inflation, capacity constraints and currency pressures have prompted authorities to hike policy rates,” the World Bank flagship report read. 

“Excluding China, the 2018 growth outlook for EAP [East Asia and the Pacific] commodity importers has been downgraded because of a moderation in private consumption amid rising inflation in the Philippines,” the report also stated. 

The Philippine economy may also be hard-pressed to attain its growth targets of 7-8 percent starting this year until 2021, as the World Bank only forecast a growth of 6.6 percent annually in 2020 and 2021.

The World Bank said these projections also take into account the capital outflows, currency depreciations, equity market corrections, and foreign reserve losses in China, Indonesia, Malaysia, the Philippines and Thailand, among others. 

Further, the Philippines along with China, Indonesia and Myanmar have been the most affected in the EAP by widening current account deficits and volatile portfolio flows, as well as exposure to trade disputes involving major economies. 

“Robust economic growth is essential to reducing poverty and boosting shared prosperity,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu. “As the outlook for the global economy has darkened, strengthening contingency planning, facilitating trade, and improving access to finance will be crucial to navigate current uncertainties and invigorate growth.”

Fastest growing

HOWEVER, the World Bank said the East Asia and Pacific remains one of the world’s fastest-growing developing regions. Regional growth is expected to moderate to 6 percent in 2019, assuming broadly stable commodity prices, a moderation in global demand and trade, and a gradual tightening of global financial conditions. 

Growth in China is expected to slow to 6.2 percent this year as domestic and external rebalancing continue. The rest of the region is expected to grow at 5.2 percent in 2019, as resilient domestic demand offsets the negative impact of slowing exports. 

The World Bank said global economic growth is projected to slow to 3 percent in 2018 and to 2.9 percent in 2019 amid rising downside risks to the outlook.

These risks include the slowdown in international trade and manufacturing activity; elevated trade tensions remain; and the experience by some large emerging markets of substantial financial market pressures.