2019 GDP growth seen rebounding
Credit to Author: ANNA LEAH E. GONZALES| Date: Thu, 31 Jan 2019 16:24:40 +0000
Domestic demand should offset a weaker global economy and allow the Philippines to post a growth rebound to 6.8-7.2 percent this year, First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said in the latest issue of their “The Market Call” report.
“With investment spending keeping high altitudes and consumer spending supported by inflation sharply falling into below-4 percent year-on-year by Q1-2019 and election spending that has started in November 2018, we think that GDP (gross domestic product) growth will rebound starting 2019,” they said.
“This New Year we should see the start of major infrastructure projects like the Metro Manila Subway, the CALAX (Cavite-Laguna) expressway, the 3rd bridge connecting Cebu and Mactan and the major Public-Private Partnership (PPP) projects gaining further traction. Thus, we see GDP growth accelerate to 6.8 percent to 7.2 percent for the full year 2019,” they added.
Economic growth slowed to 6.2 percent last year, from 6.7 percent in 2017, as inflation surged past the
2.0-4.0 percent target. The expansion fell short of the government’s downwardly-revised 2018 goal of 6.5-6.9 percent.
The upper end of FMIC and the UA&P’s 2019 projection falls within the official 7.0-8.0 percent target for the year.
In the report, they said that “investment-led growth should continue to dominate 2019.”
“Not only have infrastructure and government spending traced an elevated growth path but also private investments, as seen in robust capital goods imports and private construction, including accelerating PPP accomplishments, should provide strong support. Thus, we expect double-digit investment spending growth in 2019,” FMIC and the UA&P said.
“We believe that NG disbursements will continue to record an uptrend given NG’s strong commitment to fast-track the implementation of various public infrastructure projects. NG spending should still grow by double digits, but it will keep the budget deficit to within 3.2 percent of GDP as planned,” they added.
Consumer spending, meanwhile, is seen to grow by 6 percent this year due to lower prices of goods and the mid-term elections.
FMIC and UA&P expect full-year inflation to hit a within-target 3.0-3.5 percent this year as “weak crude oil prices, projected by the US Energy Information Administration to average some 17 percent lower than 2018, should contribute much to this downward trend.”
This will likely prompt the Bangko Sentral ng Pilipinas (BSP) to keep key interest rates unchanged and instead opt for a first quarter reduction in bank reserve requirements, with second-half policy rate cuts possible if inflation falls below 3.0 percent.
“With the new expected trajectory of inflation, we think that monetary policy tightening has ended, and with inflation down to below 4% in Q1, BSP will likely provide more liquidity to banks (especially due to Basel-3 requirements) via lower reserve requirements and more purchases of foreign exchange, also as BSP rebuilds its GIR (gross international reserves),” FMIC and UA&P said.
“Our view is that BSP will cut reserve requirements by Q1-2019 to meet liquidity needs of banks and cut policy rates by H2 (second half) as inflation goes below 3 percent (y-o-y) to provide financial support to this fairly optimistic outlook.”
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