World Bank retains 6.7% growth forecast amid slower GDP, high inflation

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Metro Manila (CNN Philippines, August 10) — Multilateral lender World Bank retains its bullish projection on the Philippine economy despite last quarter's dismal growth record.

Speaking to CNN Philippines' Business Roundup, World Bank lead economist Birgit Hansl said that they expect the Philippine economy to pick up in the second half of the year, and will hit their 6.7 percent gross domestic product (GDP) forecast for 2018.

This comes after the Philippine Statistics Authority announced last quarter's GDP, which fell at a three year low of 6.0 percent. Inflation likewise hit a fresh five year high in July at 5.7 percent.

 

"We expect that in that third and fourth quarter growth will pickup. That is a normal pattern in the growth of the Philippines," Hansl said.

The economist added that this growth could be driven by election spending, given the upcoming 2019 elections.

An increase in investment based on the World Bank's third quarter data so far and robust consumption growth could also push up the Philippine economy closer to the government's 7 to 8 percent target for the year, though the funding agency's forecast still falls 0.3 percent short.

"What we see as a more negative trend is something that comes from the external environment. We see that global growth is struggling especially still in trade, that is reflected in the Philippines in weaker growth of exports," Hansl said.

The World Bank expects the exports sector to remain weak in the next one or two years.

Attaining the growth target

Socioeconomic Planning Secretary Ernesto Pernia said that the government's growth target is still attainable if the the Philippines attains a 7.7 percent GDP in the second semester of 2018.

"We will have to double time our efforts in terms of encouraging the sectors to be more productive and efficient in their activities," Pernia said.

 

Another way to achieve this goal, the country's chief economist said, is to pass the rice tariffication law, which would allow for more imports of rice.

According to the Bangko Sentral ng Pilipinas in a press conference Thursday, the law could have a negative 0.8 percent impact on inflation, which is driven by the high price of food.

Inflation was a key driver in the dampening of the first quarter GDP, which was at 6.8 percent, almost hitting the government's 7 to 8 percent target.

However, some economists believe that the economy would have difficulty in achieving a higher GDP in the third quarter.

Ernesto Gonzales from the University of the Philippines Manila and Emmanuel Leyco of the Asian Institute of Management both expect economic growth to further slow down in the third quarter.

"Ang mabigat sa economics ay ang trend. Kapag ang trend bumaba, expected na bababa pa yan," Gonzales told CNN Philippines.

[Translation: Economics rely heavily on trends. When the trend starts going down, you expect that it will go down further.]

"I would think that in the next quarter, it would probably be even lower than 6 percent. Could be even 5.8 percent," Leyco told CNN Philippines.