Fitch unit hikes 2018 Phl growth fore­cast to 6.5%

The Philippine Star - - BUSINESS - By LAWRENCE AGCAOILI

BMI Re­search has up­graded the coun­try’s eco­nomic growth fore­cast, but sees ex­pan­sion slow­ing down af­ter a strong per­for­mance in the first quar­ter.

The re­search arm of the Fitch Group raised its do­mes­tic prod­uct (GDP) growth fore­cast for the Philip­pines to 6.5 from the orig­i­nal tar­get of 6.3 per­cent.

“On the back of a stronger-than-ex­pected real GDP growth per­for­mance in the first quar­ter of 2018, we have raised our real GDP growth fore­cast for 2018 to 6.5 per­cent, from 6.3 per­cent pre­vi­ously,” BMI said.

It said the growth ac­cel­er­a­tion from the re­vised 6.5 per­cent in the fourth quar­ter

was mainly driven by strong fixed cap­i­tal for­ma­tion, par­tic­u­larly in the con­struc­tion sec­tor that was sup­ported by the gov­ern­ment’s mas­sive in­fra­struc­ture pro­gram.

“This was slightly dif­fer­ent from 2017 when growth was largely driven by the on­go­ing global eco­nomic re­cov­ery, which raised the de­mand for Philip­pine ex­ports,” it said.

How­ever, BMI said it is stick­ing to its view that eco­nomic growth would moder­ate over the com­ing quar­ters.

“We main­tain our view that growth is likely to re­main on a slow­ing path over the com­ing quar­ters given that mone­tary con­di­tions are ex­pected to tighten fur­ther, and the de­te­ri­o­ra­tion in the busi­ness en­vi­ron­ment will likely con­tinue to weigh on pri­vate in­vest­ment and con­fi­dence,” BMI said.

Even as the Philip­pines con­tin­ues to en­joy pos­i­tive de­mo­graph­ics, the Fitch unit said the econ­omy is show­ing signs of over­heat­ing and the de­te­ri­o­ra­tion in the busi­ness en­vi­ron­ment would weigh on pri­vate in­vest­ment.

Amid the ex­pected slow­down, BMI said Pres­i­dent Duterte’s ex­pan­sion­ary fis­cal pol­icy would con­tinue to pro­vide sup­port to an above six per­cent head­line GDP growth in the com­ing quar­ters.

BMI said an­other ma­jor eco­nomic growth theme in the Philip­pines is the pos­i­tive de­mo­graph­ics that would con­tinue to sup­port the de­vel­op­ment of the la­bor-in­ten­sive busi­ness process out­sourc­ing (BPO) and man­u­fac­tur­ing in­dus­tries, as well as the re­tail and con­sumer goods sec­tors.

It added the peso has been one of the worst per­form­ing cur­ren­cies in the re­gion year-to-date, and like­wise for the bench­mark Philip­pine Stock Ex­change index.

BMI said in­fla­tion would re­main an is­sue over the com­ing months even if the Bangko Sen­tral ng Pilip­inas (BSP) raised bench­mark rates by 25 ba­sis points last May 10 as in­fla­tion rose to a fresh five year high of 4.5 per­cent in April from 4.3 per­cent in March.

BMI sees the Mone­tary Board fur­ther rais­ing in­ter­est rates by an­other 25 ba­sis points to­ward the end of the year to curb rising in­fla­tion from higher global oil prices and the im­pact of the new tax re­form law.

“Such a move may slow do­mes­tic de­mand and will likely act as a damp­ener to growth. In ad­di­tion, we ex­pect the de­te­ri­o­rat­ing busi­ness en­vi­ron­ment to con­tinue to weigh on pri­vate in­vest­ment over the com­ing quar­ters,” it said.

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