STANDARD Chartered Bank has cut its growth forecast for the Philippines but added that the country will remain the fastest growing in Southeast Asia, supported by favorable domestic conditions that would not need fresh monetary stimulus over the coming year.
The bank said gross domestic product (GDP) will likely expand by 6.5% this year, down from its previous 6.8% forecast but still within the government’s 6.5-7.5% growth target band. If the forecast bears out, growth would slow from 6.9% posted in 2016.
Edward Lee, Standard Chartered Bank’s head for ASEAN economic research, attributed the revised growth estimate to the “weaker-than-expected” 6.4% growth posted during the first quarter, but said that the economy could pick up steam during the second half of 2017.
“We see growth picking up in H2 (second half) relative to H1 (first half). Infrastructure investment is likely to recover from the Q1 trough as investments in Metro Manila come online. Project delivery in line with the planned schedule would present upside risks to our growth forecast,” according to the bank’s mid-year report also released yesterday.
“Public-sector construction momentum is likely to pick up in H2, while robust domestic demand is keeping manufacturing growth steady.”
During a media briefing yesterday, Mr. Lee said that consumer spending is seen to remain relatively stable, supported by steady growth in worker remittances which is expected to rise by another 4-6% this year.
A recovery in exports — which has been sustained since the year opened — would likewise contribute to the growth story and keep the Philippines the fastest-growing economy compared to its neighbors Indonesia, Malaysia, Singapore, Thailand, and Vietnam, the bank economist added.
Upbeat growth prospects and manageable price movements give the Bangko Sentral ng Pilipinas (BSP) further leeway to stand pat on interest rates, another bank analyst said.
“Inflation is not really an issue for most central banks… Earlier in the year, it looked like the Philippines and Thailand (would have) higher inflation but now, it has come back to the center of (the target) zone so I don’t think there’s any immediate pressure to hike from the central bank,” Kaushik Kudra, the bank’s head of rates and credit research, said during yesterday’s briefing in Makati City.
Mr. Lee added that the benign inflation environment would allow the BSP to remain on hold even until 2018, noting that inflation may have already peaked this year at 3.4% in March and April.
Price increases averaged 3.1% during the first semester, matching the central bank’s full-year forecast and remaining within the 2-4% target band.
On the other hand, Standard Chartered sees the peso returning to a stronger level at P49.50 by yearend. It has been trading weaker than P50 since last month.
Mr. Kudra said the current account deficit is exerting pressure on the currency, but noted that such compression is viewed a “short-term” phenomenon as the country moves to a “higher investment phase” with imports of capital goods growing.