People flock to the Markina public market on the first day of implementation of Alert Level 1, March 1. — Philippine Star/ Michael Varcas

THE Philippine economy is expected to grow by 8% this year on the back of upbeat first-quarter economic expansion, Standard Chartered Bank economists said.

In a report, Standard Chartered Chief Economist for Southeast Asia and India Edward Lee and economist Jonathan Koh said the bank had raised its Philippine gross domestic product (GDP) growth forecast to 8% in 2022 from 7.5% previously.

The projection is well within the 7-9% target of economic managers.

“By industry, 11 of 16 industries expanded quarter on quarter and we estimate that 72% of the economy is above pre-COVID levels. The first-quarter GDP print validates the narrative that the Philippines’ economic recovery has gained traction,” they said.

Philippine GDP expanded by a faster-than-expected 8.3% in the first quarter, a turnaround from the 3.8% contraction a year earlier. It was also faster than the 7.8% growth in the fourth quarter of 2021.

Standard Chartered hiked its Philippine inflation forecast to 4.5% this year from 3.6% “on higher-than-expected inflation year to date, driven by higher oil, electricity and food prices.”

“With China sticking to its dynamic zero-COVID policy and the Russia-Ukraine war, supply-side disruptions may persist through the year, keeping commodity prices elevated,” the Standard Chartered economists said.

“In addition, the robust economic recovery and improving labor market conditions may lead to broadening inflationary pressures in the months ahead.”

Headline inflation surged to a three-year high of 4.9% in April, surpassing the 2-4% target set by the Bangko Sentral ng Pilipinas (BSP).

The economists said they now expect the BSP to raise interest rates by 150 basis points (bps) this year, starting with the May 19 meeting.

“We now expect monetary policy normalization by BSP to begin earlier and move at a faster pace. We now project six consecutive policy rate hikes of 25 bps each, starting in May and ending in December, to bring the policy rate to 3.5% by end-2022.”

They said hikes worth 50 bps in the next meetings might also be possible if inflation reaches the 6% level.

“However, our base case assumes that BSP will opt for a measured and gradual pace of rate hikes to support a sustainable economic growth recovery amid still elevated uncertainty,” they said.

BSP Governor Benjamin E. Diokno earlier said they might consider a rate hike in June. He has also said they are ready to respond preemptively if inflation risks become more prevalent.

Eight of 17 analysts in a BusinessWorld poll expect the central bank to start increasing interest rates at its Thursday meeting given stronger growth in the first quarter. They said this is enough reason for the BSP to start focusing its response on surging inflation. — Luz Wendy T. Noble