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Fitch sees PH economy sustaining momentum

In 2019, 2020

Published

By Chino S. Leyco

Debt-watcher Fitch Ratings maintained that the Philippine economy will continue to “perform well” in the next two years despite the current higher than expected inflation.

A flag is reflected on the window of the Fitch Ratings headquarters in New York. (REUTERS/Brendan McDermid/Files / MANILA BULLETIN)

(REUTERS/Brendan McDermid/Files / MANILA BULLETIN)

 

In a statement, Tony Stringer, Fitch managing director and chief operating officer, said that the country’s economy, as measured by its gross domestic product (GDP), may grow by 6.7 percent next year and in 2020.

Stringer, who took part in the recent Philippine Economic Briefing held in London, believes the spike in inflation, which was seen at 6.7 percent last month, may prove to be temporary.

Headline inflation increased to 4.3 percent year-on-year in the first half of the year from 2.9 percent in 2017, which was also above the Bangko Sentral ng Pilipinas’ (BSP) target of 2.0 percent to 4.0 percent.

“We expect consumer price inflation to average around 4.4 percent in 2018, above the BSP’s official band of 2 percent to 4 percent, due in large part to higher commodity prices and a recent increase in excise taxes associated with the tax reform package passed at the end of last year,” Stringer said.

“However, the one-off impact of the tax hikes is likely to dissipate in 2019, and therefore we expect average inflation to fall to around 3.8 percent in 2019. We think the BSP’s cumulative rate hikes of 150 basis points so far this year should help to keep further inflationary pressures from building up,” he added.

The latest preliminary assessment conducted by the ASEAN+3 Macroeconomic Research Office (AMRO) following its visit in October sees the Philippines sustaining its robust growth in 2018 and 2019 due to strong government spending and investment.

The economic output projected to expand by 6.5 percent this year and 6.4 percent in 2019.
According to Stringer, the Philippines remains one of the fastest growing economies in the Asia Pacific region.

“Strong domestic demand will remain a driver of growth in the Philippines, supported by rising expenditure under the Philippine government’s public investment program and private consumption spending which remains supported by remittances,” Stringer said.

He warned, however, that macroeconomic performance generally remains strong, the economy faces some overheating risks in the near term.

The BSP already raised its key policy rates by a cumulative 150 basis points so far this year, which Stringer said should help to keep the pressures under control.

“While foreign direct investment (FDI) data suggests that foreign investor sentiment has been holding up reasonably well in recent months, a relatively weak business environment could pose a risk to attracting higher levels of FDI,” Stringer said.

President Rodrigo Duterte recently signed Executive Order No. 65 promulgating the 11th regular Foreign Investment Negative List (FINL) that would allow 100 percent foreign investment participation in five areas.

These are internet businesses; teaching at higher education levels (provided the subject taught is not included in a government board or bar examination); training centers engaged in short-term high-level skills development that do not form part of the formal education system; insurance adjustment companies, lending companies, financing companies and investment houses; and wellness centers.

EO 65 also increased foreign participation to as much as 40 percent in contracts for construction and repair of locally funded public works; and private radio communication networks.

Budget Secretary Benjamin Diokno expressed optimism that foreign investment net inflow for this year may likely surpass the record $10 billion in 2017.

While the global FDI is declining, the Philippines’ investment is increasing, Diokno said, adding that the easing of rules for foreign investment participation will entice more investors.

Socioeconomic Planning Secretary Ernesto Pernia said in a statement that the signing of the 11th regular FINL “will help raise the country’s competitiveness, and allow us to be closer to parity with other ASEAN member-states by opening up more areas for foreign investment into the country, particularly those that will introduce new technology and stimulate innovation.”

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