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Barclays keeps bullish outlook for PH

By Joann Villanueva

September 19, 2018, 6:19 pm

CLARK, Pampanga -- An economist of Barclays remains optimistic about an above six percent expansion for the Philippine economy in 2018 amid risks from elevated inflation.

In a briefing at the sidelines of the site visit by economists, bank analysts and portfolio strategists at the New Clark City, Rahul Bajoria, Director of the Research unit of investment bank Barclays said his expectations on Philippines’ domestic output “did not fundamentally change” despite the risks that have cropped up.

“We have been positive about the growth outlook of the Philippines for quite some time. Still forecasting closer to 6.5 percent this year. Probably increasing next year as the construction momentum picks up,” he said.

Increased infrastructure spending is the priority of the current administration under its “Build, Build, Build” program. Under this program, the government plans to invest at least PHP8 trillion to build necessary infrastructure around the country until 2022.

Authorities said putting in place needed infrastructure would ensure inclusive growth in the domestic economy.

However, growth is being tempered by the rise of inflation rate due to supply-side factors and management issues that have resulted in the lack of supply of rise, fish, meat and vegetables.

Food inflation, for one, has been pushing headline numbers, which as of end-August averaged at 4.8 percent, higher than the government’s two to four percent target band until 2020.

Volatility of the local currency is another concern, Bajoria said. “But I think the central bank, the Governor yesterday, Deputy Governor Diwa (Guinigundo) made it pretty clear that the central bank is quite on top of the situation,” he said.

Inflation hit 6.4 percent last August and monetary officials maintain their forecast of a peak in the third quarter this year.

Bajoria said inflation is projected to peak in the third quarter this year, if it has not peaked yet last August, and to go back to within target levels starting in the second quarter of 2019.

“So a little bit of more monetary policy tightening from hereon, i think, will slow down the growth (of inflation) materially in our view,” he said, as he projects another 50 basis points increase in the Bangko Sentral ng Pilipinas’ (BSP) key rates during the meeting of the central bank’s policy-making Monetary Board (MB) on September 27.

The economist eyes inflation to average at 5.1 percent this year and 3.5 percent next year. He said changes on these figures depend on the rice tariffication measure that is currently being discussed in Congress and which has been certified as urgent by Presiden Rodrio R. Duterte.

In terms of the peso’s weakness against the greenback, the economist said this is not unique to the local unit since other currencies in the region are also depreciating. “But some of it is probably is a reflection (of what) we have seen on the growth side. It is starting to get reflected on the current account numbers, which has moved from a large supply to a large deficit,” he said.

The local currency is currently trading at 54-level to a US dollar but the economist expects the weakness to be transitory. “Philippines does have, still, a very strong structural drivers of the current account financing in the form of remittances, (and) BPO (business process outsourcing) flows, which will probably be dominating once the building cycle is over.

Bajoria also forecasts a USD 6 billion foreign direct investments (FDI) for the country this year, lower than the record-high USD10 billion last year.

For the third quarter domestic output, the economist forecasts an uptick from six percent in the second quarter, with the latter dubbed as “strong”.

“The activity numbers domestically are very strong. Right now there are signs that we will see a little bit of that...we probably have a growth rate of above 6.5 percent but I don’t know. I’m still trying to gauge how much of an impact Typhoon Ompong had on activity,” he said, but cited that the effect “doesn’t feel like a lot though.”

Among the growth drivers for the current quarters are the inflows from Overseas Filipino Workers (OFWs) and the foreign direct investments (FDIs), with the latter projected to hit USD6 billion this year from last year’s record-high of USD10 billion.

“Overall, getting close to 6.5 percent growth would be okay. And government spending is really a big driver here,” he added.

Meantime, SMBC Nikko Securities (Hong Kong) Limited President Katsuhiko Yasui, during the same briefing, said the six percent-level output the Philippine economy has sustained for some years now is impressive.

He believes in government’s ability to implement its ambitious infrastructure program. “You can do that because you have relatively healthy budget in terms of ratio to GDP (gross domestic product). You have money to spend,” he said.

Katsuhiko said the government’s bid to implement the massive infrastructure program is a good move since this will benefit the exports sector as well as the currency. “It’s is a big help for the government,” he said as he disclosed that more Japanese investors are now looking to place they money here.

Katsuhiko, however, said that risks remain and these include the depreciation of the peso and rising deficit on the government’s current account. (PNA)

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