Slowing inflation to pave way for more robust growth — FMIC

Inflation is expected to ease further to below four percent in the second half of 2019, likely boosting consumer demand and paving the way for a more robust growth next year, said the investment banking unit of the Metrobank Group.

In the December issue of The Market Call it publishes with the University of Asia and the Pacific (UA&P), First Metro Investment Corp. (FMIC) said the perceived end of the central bank’s policy tightening cycle and expected cut in the reserve requirement for banks by the second quarter of next year is also expected to support consumption with the growth in money supply.

“Along with robust spending in infrastructure and capital outlays, election-related spending and job generation, we think Philippine economic growth is poised for faster expansion in 2019,” said FMIC and UA&P.

“Given the pace of inflation deceleration, we expect that MB (Monetary Board) will have ended their policy hiking cycle in November. For next year, we expect an early cut in reserve requirements as banks have been crying for liquidity in the face of Basel 3 demands, and a policy rate cut in 2H-2019 when inflation would have gone below four percent,” the report added.

Headline inflation decelerated to six percent in November from a peak of 6.7 percent in September and October.

Significant slowdown in the prices of major food commodities and crude oil largely contributed to the decline in the headline rate.

FMIC and UA&P expects inflation to slow down to below five percent in the first quarter of 2019 and below four percent in the third quarter of next year.

This is anchored on the continued decline in crude oil prices, rollback of public transportation fare, huge import volume of rice once tariffication is firmly in place, and normalization of fish and vegetable production.

The Philippine Statistics Authority is expected to announce the December inflation figures on Jan. 4.

FMIC and UA&P expects the December headline rate to have settled at 5.9 percent. In line with the trend, growth in consumer prices is seen slowing down to 5.3 percent in January 2019 and 4.7 percent in February.

After two quarters of subpar growth in gross domestic product (GDP), a recovery beginning in the fourth quarter can be expected, continuing into 2019.

This is because of rapidly decelerating inflation, robust job gains, and election spending seen to have started in November.

The traditional influx of remittances by OFWs during the holiday season should also provide ammunition for a recovery in consumer spending in the fourth quarter of the year.

“All told, we still think the economy will grow by 6.5 percent this year, banking on a good Q4, which we see expanding further in 2019,” said the report.