Wallace Business Forum sees 7% GDP growth this year

Business consultancy firm Wallace Business Forum (WBF) expects the Philippine economy to grow at a faster rate of seven percent this year on the back of a favorable global environment and the newly enacted tax reform law.

In a report, the WBF sees the country’s gross domestic product (GDP) growing by seven percent this year, faster compared to the 6.7 percent growth recorded in 2017.

“Overall, GDP is seen to increase near seven percent in 2018, slightly better than the pleasantly surprising 6.6 percent posted in 2017. This means that the Philippines will continue to be among the best performers among the emerging market economies of Asia for the seventh straight year, and will remain on track with its poverty reduction goal over the medium term,” the WBF said.

According to the WBF, the positive prospects for the Philippine economy this year would be due to the favorable global environment – the faster growth in affluent and emerging economies and stable world commodity prices – and implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

In particular, the consulting firm said household spending is projected to increase by 6.5 percent this year as a result of the lower personal income tax rate, which, in turn, is expected to boost household budget by P140 billion.

“Additional push to private consumption will come from the subdued inflationary expectations and increased peso value of transfers to the families of overseas Filipino workers due to the modest peso depreciation,” it said.

Furthermore, the WBF said improved domestic and global outlook would translate to more employment opportunities domestically and abroad.

Meanwhile, the WBF expects fixed investments to rise by 6.7 percent this year, supported by infrastructure spending and capacity expansion of some export-oriented industries.

“The industrial sector, lifted by construction and manufacturing, will again be the growth pace-setter in 2018. Services will also show an acceleration given significant gains in banking, transport, trade, and health care,” it said.

However, the WBF said it sees some weakening in the business process outsourcing sector due to slowdown in the voice segment, which will be slightly compensated by healthcare, information management, back offices and shared services.

“After recording a high rate of growth due to the low base in the previous two years, agriculture will start reverting to near its historical average increase, albeit still slightly above average at three percent in 2018,” it said.

Meanwhile, the WBF expects headline inflation to settle at 3.5 percent in 2018, slightly higher than the 3.2 percent posted last year.

This is, however, still within the two to four percent target range of the Bangko Sentral ng Pilipinas (BSP) due to the foreseen stability of world commodity prices and relatively favorable weather conditions.

“The manageable inflation scenario will allow monetary authorities to still maintain some relaxation in liquidity, which should provide room to help push economic growth to higher levels. This relaxation means a minimal increase in policy rates, which should continue to support corporate borrowings for more production and expansion, and public borrowings for infrastructure building,” the WBF said.

Furthermore, the WBF said the expectation of a mildly rising interest rate would mean the BSP would maintain a hands-off policy on the exchange rate. Nevertheless, the WBF sees peso depreciating to 51 to $1 in 2018 to correct the imbalance in the country’s current account.