MANILA -- An official of Sun Life of Canada (Philippines) Inc. (SLOCPI) forecasts a 6.4 percent growth for the Philippine economy this 2018, lower than the government’s seven to eight percent target, but still among the highest in the region.
In an interview with the Philippine News Agency (PNA), SLOCPI Chief Investment Officer Michael D. Enriquez said the forecast has taken into account recent developments such as the elevated inflation rate and impact of external developments.
He added that a 6.4 percent output, as measured by gross domestic product (GDP), represents “strong” growth compared to the United States, which only grew by 4.2 percent in the second quarter of 2018.
Enriquez said the government’s growth target is “ambitious” but attainable “as they build infrastructure.” He was referring to the massive infrastructure program called “Build, Build, Build”, which is targeted to be financed by a minimum of PHP8 trillion until 2022.
He is “very confident that they (the government) can deliver that” once the infrastructure projects are in place. “Once those are established, I think, we can see our economy to breach seven (percent) by 2020," he added.
“That’s why the picture is there might be some negative things now but it’s giving us the opportunity to re-assess positioning in the market. We’re investing,” he said.
In the first half of the year, the economy grew by 6.3 percent, at 6.6 percent and six percent for the first and second quarter, respectively.
Enriquez, in a briefing, said consumption will remain among the growth drivers of the economy. He explained that consumption might take a small hit resulting from the rise of domestic inflation, but it generally remains robust.
Rate of price increases averaged at 4.8 percent in the first eight months this year, with the August level rising to 6.4 percent from 5.7 percent in the previous month.
Enriquez forecasts September inflation to rise to seven percent, with the peak for this year at “slightly above seven percent.”
These figures are higher than the government’s two to four percent target range until 2020. Enriquez also raised the possibility of elevated rates until the first quarter of 2019, although he forecasts inflation to average 4.1 percent next year.
He attributed his lower inflation forecast for next year to the expected approval of the rice tariffication measure, and the normalization of world oil prices to around USD60-70 per barrel from around USD82 per barrel to date.
With inflation still on the rise, the SLOCPI executive forecasts another 25 basis points increase in the Bangko Sentral ng Pilipinas’ (BSP) key policy rates in the last quarter of the year.
To date, the BSP’s key rates have been hiked by a total of 150 basis points, bringing the overnight reverse repurchase (RRP) rate at 4.5 percent.
Enriquez said market players’ concerns have also been addressed since recent interest rate hikes clearly show that the central bank is in control of the situation “It’s more of the stance of the BSP than the hiking of rates,” he said.
In terms of the banks’ reserve requirement ratio (RRR), which has been cut by two equal 100 basis points to date to 18 percent, Enriquez is considering another 200-300 basis points reduction in 2019 but only if inflation will decelerate.
Moreover, the peso is seen to end 2018 at around P53.80 to a dollar, and to firm up to about P52.90 to a greenback next year.
To date, the peso has depreciated by around eight percent and Enriquez traced this partly to an upward spike in importation, which in turn, is required by the expanding economy. (PNA)
