Sun Life cuts 2018 GDP estimate to 6.4% from 7%

SUN LIFE of Canada (Philippines), Inc. (Sun Life Financial) has downgraded its economic growth forecast for 2018, driven by lower consumption due to elevated inflation.

In a news conference in Makati City, Sun Life Financial Chief Investment Officer Michael Gerard D. Enriquez said the group expects gross domestic product (GDP) growth of 6.4% in 2018, against the 7% previous estimate.

If realized, the inflation forecast will be below the 7-8% target set by the government for this year until 2022.

“Higher inflation has really been slowing down expectations of GDP growth, and this has been evident in the second-quarter GDP,” Mr. Enriquez said.

Growth was 6% in the three months to June, well below the revised 6.6% from a year earlier. The second quarter reading was the lowest in three years and below market expectations of 6.8% in a BusinessWorld poll.

He called the 6% result “way disappointing” because the consensus was 6.4-6.5%. “Clearly one of the culprits was consumption. It went down a bit. And it comprises two-thirds of our GDP,” Mr. Enriquez said.

“Clearly the threat from inflation remains brought about by higher global oil prices and the high price of rice,” he added.

Inflation was 6.4% in August, the highest level in nearly a decade. The September resulted is also expected to reflect the impact of typhoon Ompong (international name: Mangkhut) which affected key agricultural areas in Northern and Central Luzon.

Contrary to the estimates of economic managers that inflation will peak in the third quarter, Mr. Enriquez said “it should peak some time in the first quarter in 2019.”

“I think the typhoon effect will not be captured in September. It will probably be captured in October or November,” he said, noting that transportation and wage hikes “have been factored in as well.”

Despite the inflationary pressures, Mr. Enriquez said rampedup government spending as well as investment from the private sector will provide tailwinds to economic growth.

“The long tailwind that we are expecting is the infrastructure push of the government. If you believe the government will deliver, that’s something that can spur growth for the economy down the road,” he said.

“We will probably see more negatives before positives in terms of the economy. That will be translated in financial markets as well.” —