By James A. Loyola
UBS AG expects the Philippines’ real gross domestic product (GDP) momentum to slow to 6.1 percent in 2019 and 2020 from the forecast 6.4 percent in 2018.
In its ASEAN Outlook Update, UBS said GDP will slow after a recovery from policy- induced weakness in the first half of 2018.
“Monetary conditions have tightened as a result of the 2018 rise in market and policy rates. The escalating trade war should also have an impact, albeit modestly due to the low weight of goods exports in the economy,” the bank said.
While a slight trade impact could allow consumption growth to recover on lower inflation, UBS said “we don’t look for quicker GDP growth 2020 because we expect the credit boom to moderate and any boost from the mid-term elections to fade.”
It noted that, “lower inflation should be the critical macroeconomic trend in 2019. Although real GDP growth is projected to remain above 6 percent and credit growth is likely to stay in double digits, inflation can fall because the vast majority of the acceleration in inflation in 2018 was driven by food prices.”
UBS said the government’s supply-side response (importing more rice) and the natural response of consumers and producers are already working to stabilize the price of rice and other foods.
“Stable food prices should allow headline CPI (consumer price index) inflation to fall to around 3 percent by end 2019,” it added.
Meanwhile, UBS said it does not expect additional incremental monetary policy tightening since the fall in food price inflation should allow the Bangko Sentral to leave policy on hold during 2019 and into 2020.
“Fed policy rate hikes limit the room for lower policy rates but the central bank might take the opportunity to reduce bank required reserve ratios,” it added.