Standard Chartered Bank has reduced its growth forecast for the Philippine economy from 6.4% to 4.6% this year but sees government’s infrastructure spending as a majpr growth driver for the country’s economy.
In a virtual briefing Thursday, Standard Chartered Bank economist for Asia Chidu Narayanan said growth may even be around the 3% level if the government’s infrastructure investment will not pick up by around August since private sector investment is projected to remain soft.
On inflation, Narayanan said it may have already peaked and is “not so much of a risk anymore” even as it remains above the government’s 2-4% target band.
He forecasts inflation to average 3.9% this year, within the government’s target band. Domestic rate of price increases surpassed the government’s target last January when it rose to 4.2% and further accelerated to 4.7% the following month, but decelerated to 4.5% in the next three months and slowed further to 4.1% last June.
Monetary authorities expect inflation to remain high until the third quarter of this year, with the average for the year seen at about 4%.
Narayanan said a concern now is the bank lending growth as banks are cautious to lend given the impact of the pandemic on borrowers.
Bangko Sentral ng Pilipinas (BSP) data show that bank lending, excluding placements on the central bank’s reverse repurchase (RRP) facility, slipped by 4% last May, an improvement from the 5% decline the previous month.
Narayanan said he expects this to be sustained well into 2022 even with expectations of an economic recovery this year. He thus expects the BSP to remain accommodative up to 2022 “until growth starts to pick up.”
“We think the Philippines will remain below 2019 levels of activity, below pre-pandemic levels of activity all through 2021 and will only get there in the latter half of 2022,” he added.
In the same event, Standard Chartered Bank head of ASA (Association of Southeast Asia) FX Research, Divya Devesh said he expects the peso to improve against the US dollar in the coming months, with the end-2021 level at P49.50 to a dollar.
Presently the peso trades at the 50-level against the greenback. Devesh, however, forecasts the local currency weakening to around 50.25 against the US dollar by June 2022 and to around 50.50 by end-2022.
He attributed the peso weakening to several factors, including the perception that the peso is over-valued based on their metrics, the impact of upticks of commodity prices in the international market, and the investment outflows from the Philippines.
Devesh said risk factors for the peso are the pick-up in infrastructure spending since this will mean higher US dollar demand, and any rate hikes by the Federal Reserve.