THE PHILIPPINE ECONOMY should see better times in 2019, with growth seen picking up as prices and borrowing costs decline, analysts at First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said on Tuesday.
The analysts were bullish on prospects this year as they now see that the worst is over for inflation, which in turn would allow faster growth in household spending.
The investment banking unit of the Metrobank Group sees Philippine gross domestic product (GDP) growing faster at 6.8-7.2%, signalling a chance to hit the government’s 7-8% target. That compares to 2018 growth that averaged 6.3% in the first three quarters and 2017’s 6.7% pace. The Philippine Statistics Authority is scheduled to report fourth-quarter and full-year 2018 GDP data on Jan. 24.
“The Philippine economy is expected to rebound closer to seven percent as domestic demand continues to push it forward and will also be led by investments,” UA&P professor Victor A. Abola said during the FMIC media briefing in Taguig.
Central to the analysts’ forecast is the assumption that inflation will drop to 3-3.5% this year, versus 2018’s 5.2% average that was way past the central bank’s 2-4% target band.
Mr. Abola said inflation will sustain a slide that marked November and should fall below four percent this quarter and even clock in below three percent “by the third quarter.”
Supply shocks caused by higher food and world crude prices — which he said accounts for 95% of the inflation pickup in 2018 — have declined sharply and should now “normalize.”
A better inflation outlook would then spur consumption, which softened last year as prices ate into disposable incomes.
A sustained fiscal stimulus from the government’s infrastructure spending push, a recovery of the manufacturing, rising tourist arrivals and “hefty” spending related to the May 13 legislative and local mid-term elections should further boost overall economic growth this year, Mr. Abola said.
The analysts also expect some lift from exports, which they see growing by 4-8% this year coming from last year’s slump. On the other hand, imports will rise by 10-14%, thus maintaining a wide trade gap and pushing the peso to depreciate further to P54 against the dollar.
CAUTION ON HEADWINDS
On the flip side, possible delays in the rollout of big-ticket infrastructure projects, higher oil prices and “tight” market liquidity could dampen growth this year.
“One looming headwind is a very tight liquidity situation,” FMIC President Rabboni Francis B. Arjonillo said, noting that this condition could push borrowing rates higher and eventually put inflation on the rise anew.
Growth in money supply has slowed sharply in recent months, with November’s 8.4% down from 14.3% a year ago.
At the same time, FMIC expects the Bangko Sentral ng Pilipinas (BSP) to take steps to unleash more liquidity into the market. Senior Vice-President Christopher Ma. Carmelo Y. Salazar said he expects a reduction of at least 200 basis points (bp) in banks’ reserve requirement within the year starting in this quarter. FMIC said that a 100 bp cut in reserves would release over P90 billion which can be lent out or invested, and would then trim borrowing costs by about 7-8 bp.
This may even be followed by a 25 bp cut in the benchmark policy rate next semester amid “tame” inflation, Mr. Salazar added.
The BSP raised benchmark yields by 175 bp last year to temper surging inflation that peaked at a nine-year-high 6.7% in September and October.
Investor sentiment has greatly improved since then, with Mr. Salazar even seeing a 50 bp drop in market yields compared to yearend levels.
This year’s outlook also factors in slimmer chances of interest rate hikes in the United States alongside dimming global growth prospects. — Melissa Luz T. Lopez

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