Happy new year?

PHILIPPINES - In Brief 09 Jan 2020 by Romeo Bernardo

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First, the good news. Government has a new P4.1 trillion budget which President Duterte signed into law early this week. This would normally be par for the course but, following last year’s delayed budget that became a major drag on economic growth, is clearly a positive development. Public spending this year will moreover be supplemented by the yet to be determined unspent amounts in the 2019 budget, which will remain valid through 2020 based on a law passed by congress late last year. We expect to see much higher growth in government spending especially in the first semester of the year considering last year’s poor performance.Although government is off to a good start, other less favorable developments at the start of 2020 pose downside risks to our growth outlook. First is renewed tensions in international oil markets following the U.S. assassination of Iran’s powerful military leader, Qassem Soleimani, which saw crude oil prices rise anew (4% to $68.9/bbl for Brent). This came just as the third tranche of the increase in fuel excise taxes under the TRAIN Law went into effect. So far, increases in world oil prices do not pose a threat to our inflation forecast, especially with corrections of late. However, with heightened geopolitical risks, we expect the BSP to be more watchful of price pressures from this source and may take a more cautious approach to planned monetary easing. The BSP governor late last year signaled another 50bp policy rate cut this year.Second is lingering uncertainty due to the still pending bill in congress to change the law on corporate taxes and incentives (“CITIRA”). The Finance Department had hoped that congress would pass the bill before...