2018 GDP growth seen at 7-7.5%, PSEi at 9,400

While 2017 was a good year, 2018 would be even better for the economy, which could grow at a faster clip of 7-7.5 percent and catapult the local stock market to record highs.

This is according to investment house First Metro Investments Corp. and University of Asia & the Pacific which held their joint year-ahead macroeconomic briefing yesterday.

Amid a favorable economic backdrop, the Philippine Stock Exchange index is seen surging to a new high of 9,400 this year on the back of a 10-percent average growth in corporate earnings.

“We expect the growth of the Philippine economy to accelerate this year. All engines of growth are up and running at a faster pace. The country’s economy will remain the best performing in the Asean (Association of Southeast Asian Nations); we are experiencing a demographic sweet spot that will continue to push consumption expenditure,” said FMIC president Rabboni Francis Arjonillo.

“With the passage of the TRAIN (Tax Reform for Acceleration and Inclusion) law, the government’s “Build, Build, Build” program is anticipated to be full steam ahead, which will drive economic expansion further,” he added.

UA&P economist Victor Abola said the Philippines was “shifting to a higher gear.” From last year’s projected full-year growth of 6.9 percent, Abola said a higher trend growth rate of 7-8 percent would be doable for 2018 to 2020 without stoking inflation. There isn’t any sign of external weakness and property bubble so far, he said.

Inflation is seen to rise to 3.5-5 percent this year due to higher-than-expected oil prices and the impact of higher taxes to be imposed on a number of goods. The projected increase in consumer prices, however, is seen to remain within the Bangko Sentral ng Pilipinas (BSP)’ 2-4 percent target range.

FMIC is expecting one or two key policy rate hikes from the BSP this year while the US Federal Reserve is projected to raise its rates three times.

The peso is seen depreciating to 52.50 against the US dollar, without gnawing on the economy. A weak peso is seen to benefit exporters as well as households which receive overseas remittances.

Ma. Cristina Ulang, FMIC vice president, said the projected rise in the PSEi to 9,400 this year would assume a price-to-earnings (P/E) ratio of 21x, which means investors were willing to pay 21 times the kind of earnings they expect to make.

Ulang said the sectors that would do well in the stock market this year would be property, banks, consumer, infrastructure, conglomerates, manufacturing and power utilities.

Given the favorable macroeconomic outlook, the level of capital raising in the country is seen to expand this year by around 29 percent to P930 billion. Private companies are expected to drive a 17-percent growth in fixed income issuance to nearly P690 billion while the government is anticipated to tap new foreign markets for financing.

In the equities market, capital-raising activities—mostly through follow-on offerings—are estimated to grow by 79 percent to an all-time high volume of almost P250 billion.