Don’t mind the noise, PH seen growing 7-7.5% this year

The Philippines can grow at a faster pace of 7-7.5 percent this year due to robust domestic demand while inflation will likely taper this second semester albeit still likely to overshoot the central bank’s target, according to investment house First Metro Investment Corp. (FMIC)

FMIC also sees the main-share Philippine Stock Exchange index (PSEi) recovering to 7,900 to 8,200 by year-end on the back of a 10-percent projected growth in corporate earnings.

Inflation is seen to ease to 4.2-4.5 percent this second semester as crude oil prices taper and the cost of rice declines with the arrival of imports in June and fresh supply from the harvesting month of September, top officials of FMIC said on Monday in a joint economic briefing with the University of Asia and the Pacific (UA&P).

The inflation-targeting Bangko Sentral ng Pilipinas (BSP) aims to keep the country’s inflation rate within the 2-4 percent range. The inflation rate has already breached 4 percent in March this year, even hitting a five-year high of 5.2 percent in June.

“We remain optimistic that the Philippine economy will continue to grow at a fast pace and we have every reason to believe this,” FMIC president Rabboni Francis Arjonillo said.

Aside from a robust domestic demand, the Philippine economy is seen underpinned by a growth in investments, strong infrastructure spending, jobs creation, resurgence in manufacturing and rising tourist arrivals. FMIC’s projection for this year is faster than the 6.7-percent growth posted last year.

After two interest rate adjustments in the first semester, FMIC and UA&P expect the BSP to increase rates twice more this year to temper rising consumer prices.

Despite criticisms against the BSP being “behind the curve”—or not proactive enough in managing monetary settings and controlling inflation—UA&P economist Bernardo Villegas said it was actually “very professional” and likely to “correct their error” within the next six to eight months.

Villegas said it was possible the BSP could, at least once, even adjust rates higher than 50 basis points.

“We need more aggressive [monetary] policy because countries all over the world are increasing interest rates and we are behind the curve,” Villegas said.

One reason why the BSP is reluctant to hike rates more aggressively is likely due to concerns within the Monetary Board on investments going down. Nonetheless, he said the BSP might make a more aggressive move this third quarter.

On the local stock market, FMIC vice president Cristina Ulang said the recent pullback from a PSEi peak of 9,058 in January 2018 was a “reality check” given the uptick in oil prices, two US Federal Reserve interest rate hikes, concerns over the US-China trade war, depreciating peso, accelerating inflation and some political concerns.

The country’s rapid growth, she said, was bringing with it a lot of challenges such as higher inflation and interest rates, setting a “new normal” for the market.

However, she said the Philippines remained in better footing compared to other emerging markets in terms of economic fundamentals. She noted the country was being “unfairly lumped” with other weaker emerging markets, resulting even in P69 billion in foreign outflows so far.

With the country also nearing the 2019 mid-term elections, FMIC sees the PSEi rebounding to 7,900-8,200 from the 7,300 levels at present.