SB Equities Inc. has downgraded its growth outlook for the Philippines this year to 6 percent from a previous forecast of 6.5 percent, citing “a consumption drag and at least a modestly negative impulse from trade.”
The Security Bank stockbrokerage subsidiary said inflation and trade pass- through due to rising commodity prices may dampen the recovery potential.
“The reopening theme is playing out with improving mobility and better PMI (purchasing managers index) numbers, as such we do not anticipate a regression towards a negative path for growth, but rather a slower potential recovery than initially expected with consumption contributing around 75 percent to the GDP,” it said.
SB Equities said inflation will grow to 4.2 percent this year, up from a previous forecast of an average of 3.5 percent on the back of a surge in goods inflation caused by rising commodity prices.
“Utilities, transport, and food baskets in the consumer price index (CPI) remain the most vulnerable to upsides, and headline inflation is expected to breach the 4 percent upper target beginning this second quarter, causing higher inflation expectations and crimping consumption,” it said.
SB Equities expects the Bangko Sentral ng Pilipinas (BSP) to raise interest rate by 75 basis points (bps) this year as it takes a more proactive stance in taming inflation.
SB Equities previously said the BSP had opted to stay “behind the curve” relative to the US Federal Reserve’s hikes when inflation pressures were mostly cost-push driven.
“However, cost-push levers now are much different than in the recent past due to a global commodities contagion, and the key risk is the possibility that world commodity prices stay elevated, pressuring inflationary tendencies, thus the BSP may need to act soon lest it increase the risk of losing its grip on inflation expectations and falling behind the curve,” it said.
SB Equities said it expects the BSP to hike rates by do a 25 bps rate hike in June, to be followed by another 25bps hike in the third and fourth quarter of this year.
SB Equities expects the government’s debt-to-GDP ratio to stay elevated at 60 percent while the fiscal deficit will be around 9 percent as the country spends to cushion the impact of the current Russia invasion of Ukraine in the vulnerable sectors of the society.
“The uncertainty in the geopolitical space adds on to the disruption brought about by the pandemic resulting to a significant headwind in the fiscal front. The surge in oil prices has the government eyeing more aid for vulnerable households to cushion the impact, among these proposals is additional support for the bottom 50 percent of households at a cost of P33.1 billion (or 3.5 percent of reported government revenues in 2021), on top of off-budget subsidies as well as emergency spending funds,” it said.
“The pandemic has substantially weakened the Philippines’ fiscal position, with the country’s public debt burden jumping to 60.5 percent of GDP in 2021 from the historic low of 37 percent in 2019 and remains strained as headwinds develop,” it added.
SB Equities said with the rebound in revenue collections and economic growth, the country’s fiscal deficit and borrowings will remain supported despite the expected elevated level this year, “with fiscal support likely going into lockstep with the monetary side.”
SB Equities said the country’s debt ratio and fiscal deficit may likely decline in 2023 on fiscal consolidation under a new government administration.
