FMIC, UA&P economists: above-7% growth doable
PHILIPPINE economic growth can be expected to accelerate further this year, with favorable domestic and global conditions fueling above-seven percent expansion despite rising commodity prices, analysts of First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said yesterday.
An improving global outlook coupled with upbeat domestic demand should enable the Philippines to realize a much faster growth rate over the coming years, with investments on the rise and consumption remaining robust, UA&P economist Victor A. Abola said during an economic and capital markets briefing at the Makati Shangri-La hotel.
“A 7-8% growth with low inflation is doable for 2018 to 2022,” Mr. Abola said during FMIC’s Economic & Capital Markets Briefing yesterday.
FMIC kept its 2018 growth forecast at 7-7.5%, faster than its 6.5-7% estimate for last year. Philippine gross domestic product expanded by 6.9% in the first nine months of 2017, against the government’s 6.5-7.5% full-year growth goal.
Bigger and faster spending on infrastructure, the continued buildup of capital goods and strong private construction will boost economic activity, alongside the recovery of the manufacturing sector and an upbeat tourism sector, Mr. Abola said.
Lower self- rated poverty rates, sustained remittance inflows and bigger take-home pay among workers due to tax reform — which will add about P137 billion to consumers’ pockets — will boost consumer spending.
This will occur against the backdrop of faster but withintarget 3.5- 4% inflation, reflecting the impact of increased taxes on basic goods, particularly fuel.
FMIC estimates incremental collections under the recently enacted tax reform law will add 0.6 percentage points to inflation, which compares to the “less than one percentage point” expected impact by the Bangko Sentral ng Pilipinas (BSP) for 2018.
Mr. Abola, however, flagged emerging concerns about overheating, a weaker peso-dollar exchange rate and geopolitical risks in the Middle East and the Korean peninsula as risks to the outlook.
At home, the impeachment proceedings versus Supreme Court Chief Justice Ma. Lourdes P.A. Sereno could be a “litmus test” for the local political climate.
FMIC chairman Francisco C. Sebastian cited the “strong political mandate” of President Rodrigo R. Duterte as he continues to enjoy high trust ratings despite some “misgivings” about his leadership style.
On the other hand, the peso is expected to trade at the P52.50 level against the greenback by yearend, which will help boost the value of exports.
Accelerating inflation coupled with rising global yields would prompt policy responses from the central bank.
“As the Fed continues to move higher in terms of their policy rates, I think the BSP will also be trying to move in the same direction. Inflation this year will be higher, and with our economy as well accelerating… there is room for rates to be adjusted upwards,” FMIC Senior Vice-President Christopher Ma. Carmelo Y. Salazar added.
Interest rates and interbank rates are also expected to trend higher this year. Mr. Salazar said yields on short-term papers are likely to climb by 20 basis points ( bps) by yearend, while longer tenors will pick up by 30 bps.
A “gradual” reduction in the 20% reserve requirement ratio ( RRR) imposed on big banks may also be considered by the BSP, and may be introduced simultaneously with a rate hike. However, timing remains a crucial element, although Mr. Salazar said he expects at most a 200 bps reduction this year.
BSP Governor Nestor A. Espenilla, Jr. said that the central bank is “always looking for the opportunity” to reduce the RRR, but added that monetary authorities continue to manage liquidity in the financial system.
The government is likewise expected to rely on retail bonds as a “primary source” of financing, as it also explores new funding channels through note offerings to Chinese and Japanese investors, said FMIC’s Jose Pacifico E. Marcelo.
The government raised P437 billion from two retail Treasury bond auctions in 2017, which are expected to support increased infrastructure spending for the years ahead. —