By Joann Villanueva
Obstacles faced by the Philippine economy in 2019 are not expected this year, making an economist optimistic for the return of domestic expansion to the 6-percent level.
In a report, ING Bank Manila senior economist Nicholas Mapa said the country saw the “Tale of 2 halves” last year after the delay in the approval of the national budget and the weakening of investments due to the impact of the total of 175 basis points increase in Bangko Sentral ng Pilipinas’ (BSP) key policy rates in 2018.
These issues are aggravated by the risks from the US-China trade tensions, which made investors wary, he said.
“With the domestic speed bumps in the rear view mirror, we can expect growth to pick up in 2020 and return to 6 percent firing on all cylinders form,” he added.
Growth is seen to get further boost from strong domestic consumption as inflation remains low, from government spending due to expected passage of the national budget earlier than last year, and better investment outlook on account of cuts in BSP’s key policy rates.
Inflation, which averaged at 2.5 percent in the first 11 months last year, is seen to average at 3 percent this year, still within the government’s 2 to 4-percent target band.
Last November, rate of price increases rose to 1.3 percent from the previous month’s 0.8 percent, the lowest last year. In 2018, inflation peaked at 6.7 percent due to supply-side factors.
Inflation is seen to continue normalizing this year and this is projected to increase yields of government securities (GS) although the impact is seen to be offset by the sustained reduction in BSP’s key policy rates.
“Weaker peso should also feed slightly into higher inflation outlook but per BSP, exchange rate pass through has waned over the years,” Mapa said.
The economist, however, said the expected improvement of domestic growth may result to higher inflation and interest rates, and weaker peso at the latter part of the year.
For one, since the national budget is seen to be approved earlier than last year, imports are expected to recover and this will mean higher demand for foreign exchange, which will negatively impact on the local currency.
The report also said “general risk off tone in the wake of geopolitical events could take the shine off EM (emerging market) currencies”, including the peso.
The peso’s strength is also seen to weaken on expectations of lower foreign portfolio inflows.
“Thus, we expect a very different landscape for 2020 with growth, interest rates, inflation and USD/PHP all seeing nowhere to go but up,” the report added.
(First published in PNA)