StanChart sees 2019 GDP growth at 6.4%

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By Melissa Luz T. Lopez
Senior Reporter

GROWTH in the Philippines is expected to pick up this year with a rebound in consumption, analysts at Standard Chartered (StanChart) Bank said, noting that infrastructure spending will be the main “swing” factor.

Asia Economist Chidu Narayanan estimated Philippine gross domestic product (GDP) growth at 6.4% for 2019, which if realized will be faster than last year’s 6.2% pace.

“We think growth will be slightly better this year… We think that again, as in 2018, consumption will be the biggest driver of growth,” Mr. Narayanan said during a briefing yesterday at the Makati Shangri-la. “Infrastructure investments, both public and private, will be the swing factor.”

“We think that net exports will be a drag for growth in 2019 as well, and infrastructure investment would not be as fast as it had been early 2018… Upside risks are that infrastructure investment is significant, especially if there is a BSP (Bangko Sentral ng Pilipinas) rate cut, that will aid more private investment.”

The government’s official target range is 7-8% for GDP growth, fuelled by infrastructure spending as more big-ticket projects are rolled out.

Consumer spending is set to recover sharply this year with prices normalizing. Standard Chartered expects inflation to “drop drastically” this year, perhaps below 2.5% “within the second half” to bring the full-year level to 3.5%, well below 2018’s 5.2% average and back to within the 2-4% target bad.

Standard Chartered expects last year’s food-driven inflation to scale back this year, combining with lower crude prices to pull overall prices down.

“This sharp drop in inflation will increase opportunities or space for the central bank to cut policy rates as required,” Mr. Narayanan added, even as he noted that the bank’s base case is for interest rates to be kept steady.

“We do not expect the BSP to be cutting rates at this point in time, but if growth underachieves and comes in the lower half of 6%, then that would mean that the likelihood of rate cuts increases.”

Cuts to bank reserves may also be introduced this year, with the global lender pencilling in at least two separate reductions to 16% by yearend.

Meanwhile, the current account is expected to remain in deficit though the gap is seen narrowing, as imports are likely to remain “strong” to support the local construction boom.

On the other hand, an uncertain global environment will keep export growth weak, Mr. Narayanan added. He added that remittances, which help support household consumption as Filipinos working abroad send more money home, will help cushion the trade gap, together with tourism receipts.

Edward Lee, the bank’s chief economist for the region, also pointed out three key concerns in the global market: the trade dispute between the United States and China, political developments in the European Union particularly Brexit, and the slowdown in China’s economy.

Currency strategist Devesh Divya noted that the peso will maintain its “gradual and modest depreciation” this year, reeling from a wider current account deficit and strong dollar demand.

The bank projects the peso to trade at P54 against the dollar by June, weakening to the P55:$1 level by December.