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2019 macro outlook

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FINEX Folio -- By Flor G. Tarriela

FINEX Folio

IN OUR Philippine National Bank board meeting last week, we asked PNB bank economist Jun Trinidad on his economic macro outlook. What are the positive developments? And what can cause concern?

On positive developments, he cited the expected upbeat domestic demand outlook as inflation has now receded and expected to decline some more. The Bangko Sentral ng Pilipinas (BSP) expects inflation to be within the 2-4% level. There is also the private sector’s risk appetite in taking on major transport projects such as the Metro Manila Skyway 3 project, NLEX-SLEX connector project, and LRT1 extension to Cavite, among others. Other awarded public private partnership (PPP) projects are also ongoing. The government has also initiated the Japan ODA-funded Metro Manila subway to complement PPP projects.

If private investments sustain job and income creation, the unemployed in the rural areas can find jobs in non-farm sectors such as construction to support consumption recovery. There’s excitement over higher discretionary expenditures such as meals eaten outside or beyond basic expenditures which were restrained last year due to higher food and transport costs. Lower underemployment rate with more workers clocking 40 hrs or more per week that also resulted in an average weekly work of 43 hrs — perhaps due to overtime work, support demand. Familiar strengths like resilient OFW flows and BPO export revenues will also help sustain upbeat local demand.

As for concerns, he highlighted key macro downside risks such as the slowdown of the global economy — underpinned by China’s growth prospects of 6%-6.5% — the unresolved US-China trade conflict, and the recessionary climate in Europe heightened by Brexit uncertainty. All of these could easily translate into lower exports of manufactured goods and threaten the stability of our external accounts by causing a larger trade/current account deficit assuming imports stay resilient. Meanwhile, El Niño’s comeback could be a risk to farm output, particularly rice and corn, and also affect farm sector jobs.

The gross domestic product growth forecast is around 6.4% for the year, with first-quarter expansion expected to be slower. But what we will miss in the first quarter due to delayed fiscal spending is expected to be compensated by higher consumption and private investments. And with the approval of the 2019 budget soon, second-half growth could shift to high gear.

Market consensus is that new BSP Governor Ben Diokno is pro-growth and will seize the opportunity to address any bottlenecks as the US Federal Reserve is unlikely to raise its policy rates alongside receding local inflation. To help grease growth and free up bank liquidity, there are expectations of a cut in the banks’ reserve requirement ratio. And as inflation hits rock bottom in the third quarter, the BSP can start trimming its policy rate of 4.75% to lower market rates.




Shielding domestic demand from external macro risks would be key to upbeat growth prospects this year. Fiscal policy has to be unshackled from budget approval delays. Fortunately, it looks like the budget impasse is now resolved. Monetary policy also has to exploit the low inflation environment and address possible choke points like a tightening domestic liquidity situation and higher positive, real interest rates.

CHANGES AT BAP
Meanwhile, last Monday, there was a changing of the guards at the Bankers Association of the Philippines (BAP). BDO Unibank, Inc. and BAP President Nestor Tan bowed down after his three-year term, which saw very impressive results. The banking industry road map was completed early during his BAP presidency with BSP participation identifying mid- and long-term strategies.

The new officers of the BAP are: President: Cezar Consing (Bank of the Philippine Islands president); Vice-President: Antonio Moncupa (East West Banking Corp. vice- chair); Treasurer: Fabian Dee (Metropolitan Bank & Trust Co. president); Secretary: Enrico Cruz (Deutsche Bank head); Non-Executive Secretary: Elmer Serrano.

Congratulations to the new BAP board and set of officers!

 

Flor G. Tarriela is the chairman of Philippine National Bank. She is former undersecretary of Finance and the first Filipina vice president of Citibank N.A. She is a Go Negosyo 2018 Woman Intrapreneur awardee, a FINEX Foundation trustee and an Institute of Corporate Directors fellow. She can be reached at ftarriela@yahoo.com.









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