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Low inflation, high growth seen this year

/ 05:09 AM January 16, 2019

The Philippines will likely return to a high-growth, low-inflation regime this year, allowing the local stock barometer to recover to as high as 8,800 after a challenging period last year, local investment house First Metro Investment Corp. said.

In a separate research note, however, Dutch financial giant ING said Philippine growth might hit a speedbump in the next two quarters with still-high levels of inflation and higher borrowing expected to somewhat sap both consumption and investment momentum.

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In a joint briefing with the University of Asia and the Pacific (UA&P) on Tuesday, FMIC said the Philippine domestic economy could expand by at least 6.8 percent to as high as 7.2 percent this year as slower inflation boosts consumer spending.

The inflation rate is seen to ease to 3 to 3.5 percent this year —back to the government’s target range of 2-4 percent—as food supply normalizes while global crude oil prices enter bearish territory.

“The Philippine economy is again in a growth trajectory. Apart from the country’s strong macroeconomic fundamentals and expected inflation easing this year, another important factor in pushing economic growth is the continued policy reform drive of the Duterte administration, which includes tax reform, corruption and red tape reduction, broadening the base of the financial system and facilitation of new and disruptive technologies,” FMIC president Rabboni Francis Arjonillo said.

A recovery in manufacturing, rising tourist arrivals and mid-term election spending are also seen to contribute to faster growth this year.

The country’s gross domestic product (GDP) grew by only 6.1 percent year-on-year in the third quarter of 2018, bringing the nine-month average growth to 6.3 percent. Full-year inflation in 2018 averaged at 5.2 percent due to the upsurge in global oil prices, adjustment of taxes on petroleum and rice supply bottlenecks.

With the declining inflation, Arjonillo said local interest rates could ease by around 50 basis points this year alongside expectation of slower policy rate hikes by the US Federal Reserve and possible monetary easing by the Bangko Sentral ng Pilipinas, which is seen to slash its reserve requirement by 200 basis points this year and possibly even cut the overnight borrowing rate by 25 basis points.

For its part, ING sees Philippine GDP growing by only 5.8 percent this first quarter, by 6.1 percent in the second and third quarters and 6.2 percent in the fourth quarter.

It still expects inflation to be relatively high, averaging at 3.9 percent in the first quarter, 4.8 percent in the second quarter, 6.3 percent in the third quarter and 5.9 percent in the fourth quarter.

“Government spending, which has recently been a key source of growth, is expected to struggle in first half 2019 with an election ban preventing fresh projects and a delay in passing the budget likely to halt last year’s strong growth,” ING said in a research note issued on Tuesday.

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“But with inflation expected to slip back within target in first half and the BSP expected to ease, GDP growth momentum may be rekindled to close out the year,” it added.

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TAGS: Business, Inflation
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