Investment house First Metro Investments Corp. (FMIC) pegs the economy’s growth for the year at a range of between 6 and 7 percent, with inflation averaging within 5 to 5.2 percent and the peso settling around P54 to 55 to the dollar.
Dr. Victor Abola, a University of Asia and the Pacific economist and an FMIC partner, downplayed the need for an aggressive rate hike by the Bangko Sentral ng Pilipinas to address the current high inflation as he stressed the country’s fundamentals are better than in the past crises.
FMIC, however, still sees the policymaking Monetary Board raising rates by a total of 100 basis points until the end of this year.
“We don’t need that aggressiveness. We just need to address a lot of the supply side issues like for example, food prices. The thrust of the government in trying to remove supply chain issues is well taken. And of course, it depends on how fast they can do it. But over the medium term, I recommend the government putting incentives for farmers and corporate farming to get back into the picture,” Abola said.
He said the economy is sure to post a faster growth after two-three years of dampened activity due to the coronavirus disease 2019 pandemic.
“Our situation right now is better than past crises, and we don’t see any credit downgrade anytime soon,” he added.
Abola said the inflationary environment largely depends on how long the Russian invasion of Ukraine will last and the US’ hawkish monetary policy won’t necessarily drag local rates up as much.
“Fundamentally because US inflation is much higher than Philippine’s by at least 250 basis points. And so they need to catch up on the tightening much, much more than we do,” he said.
FMIC said the economy’s growth will be driven by sustained domestic demand — household consumption, government, and investment spending.
Jose Patricio Dumlao, FMIC president, also noted that the country’s gross international reserves (GIR) remain high at $106.8 billion – about 9 months’ worth of imports – with external debt-to-GDP still low at 2 percent.
“OFW remittances, which increased to (nearly) $35 billion in 2021 will likely grow by 3.5-5.5 percent this year. Revenues from BPOs reached P28 billion in 2021 and will continue to increase by at least 6 percent in 2022,” he said.
The Philippine Stock Exchange index (PSEi) is projected to reach 7,100 by yearend against the backdrop of “attractive valuation and positive investor sentiment” with corporate earnings seen growing by 10 percent, leading to a price-to-earnings valuation of 17x for the year.
The bond market meanwhile could see a slowdown in the second half of the year with bond yields given the rising interest rates.
