Philippine Budget impasse could delay consumption recovery: DBS

A rice vendor rests at her market stall in Quezon City. A mild pick-up in consumption is expected to fuel economic growth in the Philippines in 2019.
JANUARY 30, 2019 - 3:43 PM

WITH Manila facing a protracted delay in passing the national Budget for 2019, the hold-up is set to weigh on investment and consumption, DBS analyst Masyita Crystallin warned on Wednesday (Jan 30).

Meanwhile, United States political issues such as its trade war with China and clampdown on immigration could also hurt Philippine growth.

And, while consumption - the biggest drag to economic growth in 2018 - is expected to bottom out on easing inflation, a Budget delay could still hit private spending, said the DBS report. The Philippine Budget includes provisions for civil service wage hikes, cash transfers to low-income households and fuel subsidies for jeepney drivers.

The DBS report noted that another headwind for consumption would be a slowdown in remittances flows, exacerbated by a one-year US ban on visas for temporary non-agricultural and seasonal labourers, as well as construction and healthcare workers.

Electronics shipments, which make up the bulk of the Philippines’ exports, have been hard hit by the US-China trade war and a broader slump in the sector.

“As global electronics demand softens, we think it is crucial for Philippines to diversify its exports basket from heavy reliance on electronics,” the report said.

The house flagged the possibility that trade could weigh on the economy, even though construction and infrastructure-related imports could be sustained as infrastructure development remains a government priority. Still, some projects at risk of going unfunded from a late Budget include the Metro Manila subway and rail lines in Mindanao and nationwide.

DBS has forecast economic growth of 6.5 per cent for 2019, on expectations of a slight improvement if consumption recovers.