The Philippines’s economic growth was seen to moderate in 2017 before picking up in 2018, while inflation was likely to remain within the target range. This was according to the preliminary assessment by the Asean+3 Macroeconomic Research Office (Amro) after its annual consultation visit to the country in September. Discussions centered on risks to macroeconomic and financial stability, progress and challenges of the government’s infrastructure push and pending fiscal reforms and risk pockets that could dampen growth prospects.
Dr. Sumio Ishikawa, Amro lead economist, led the mission. Amro Director Dr. Junhong Chang and Chief Economist Dr. Hoe Ee Khor participated in the policy discussions.
After the boost from elections-related spending in 2016, the pace of economic expansion moderated to 6.4 percent in the first half of 2017 as fixed investment decelerated. Private consumption growth also slowed but, nonetheless, remained robust, supported by gains in employment and sustained remittance inflows. Government disbursement was weak in the first quarter, but improved in the second quarter to guide public spending higher. The trade deficit eased in the first half of 2017 as exports outpaced imports for the first time since the first quarter of 2015. Both private consumption and exports are expected to remain buoyant going forward, while hurdles to budget execution are also gradually being overcome.
Inflation has climbed to within the 2 percent to 4 percent of the government’s target range on higher food and oil prices and is expected to settle slightly above the midpoint through 2018. Risks to the inflation outlook are tilted to the upside arising from the transitory impact of the fiscal-reform program and the pending petitions for adjustments in electricity rates. While upside risks to the inflation outlook are mostly supply-driven, monetary policy should remain vigilant against possible demand pressures with the economy growing robustly and credit expanding rapidly, and against the potential second-round impact of the tax reform on inflation.
The economy continues to have sound macro fundamentals, which should make it less vulnerable to shocks.