ECONOMIC growth for next year may still fall below 6 percent, particularly if the Philippines will not be able to withstand headwinds, such as the slowdown in global trade and the African swine fever (ASF) outbreaks.
Bank of the Philippine Islands (BPI) lead economist Emilio S. Neri Jr.
outlined four key global and domestic factors that would challenge the
country’s economic performance next year. Neri said “stronger” global headwinds
are anticipated next
year as there has been a discernible slowdown in the exports of China and the United
States.
“Our external advisers tell us that the US and China growth deceleration in 2020 may even be more severe due to both cyclical and protectionist factors,” he said during the BPI’s macroeconomic outlook briefing in Makati on Thursday.
As for the country’s exports data, Neri said shipments to the European Union and even to Asean are declining year-on-year through August.
“[Export] is anemic, it’s hardly growing at all, coming from a very weak performance last year. The big portion of the drop is due to the EU and unfortunately Asean disintegration—instead of integrating, we are seeing a drop of exports to the rest of Asean,” he added.
Neri said the “aggressive” frontloaded borrowings of the Bureau of the Treasury, which have been parked idly with the Bangko Sentral ng Pilipinas (BSP) during the first 7 months of the year, “caused a massive domestic liquidity squeeze.”
He said the government’s borrowings practically negated the 2-percentage point reduction in the reserve requirement ratio.
“If government starts spending again, and they withdraw funds from BSP, which have been locked, then [the funds] will recirculate in the system, allowing the economy to enjoy more liquidity,” Neri said.
As for corporate borrowings, Neri said there has been slower demand for loans among their large firm clients who may be waiting for interest rates to fall further. He said these clients took on less long-term loans for long-term projects compared to previous years.
“One phenomenon here is behavioral economics. Corporates wait for interest rates to fall to their bottom before they become aggressive in borrowing long-term loans,” he said.
“You will not lock your borrowing rate if you believe that interest rates will continue to go down. The anticipation of lower interest rates instead of fueling more borrowings actually causes some hesitation because they tend to wait for the bottom to come before they start borrowing aggressively,” he added.
The BPI’s lead economist also noted that the slowdown in manufacturing caused by the plunge in the farm-gate prices of rice and pork could slowdown economic growth.
“We cannot shrug off the potential drag resulting from income losses of farmers due to the collapse in the farm-gate price of rice and the impact of the discovery of ASF in the livestock sector,” Neri said.
The Philippines could grow by 6.4 percent next year sans these headwinds, higher than the estimated 5.9 percent for this year, he said.
“If we can hurdle these factors in early part of 2020 and in the latter part of 2020, we should be back on track to [achieving] GDP growth of 6 percent to 7 percent. If not, we will probably have to see another sub-6 percent growth,” said Neri.