Philippine economy to strengthen in 2020 – FMIC

Philippine economic growth was expected to improve year-on-year in 2020 and accelerate up to 6.6 percent given the expected surge in consumer and infrastructure spending, First Metro Investment Corp. said Tuesday.

According to FMIC President Rabboni Francis Arjonillo, local gross domestic product (GDP) was expected to grow by 6.2 percent to 6.6 percent this year

"The Philippine economy will grow faster in 2020 compared to 2019, fueled by stronger consumer spending, easing monetary conditions and growing tourism sector," Arjonillo told reporters in a press conference in Taguig City.

"Consumer spending, which accounts for 66% of the country's GDP, will expand further driven by robust government and infrastructure spending, higher employment rate, manageable inflation, and robust OFW remittances," he elaborated.

This follows the slower-than-expected growth registered in the first two quarters of 2019, which the administration attributed to the delayed passage of the national budget.

Congress failed to pass the 2019 budget on time, and President Rodrigo Duterte was able to sign the General Appropriations Act only in April.

To catch up, the Philippine economic team planned to spend aggressively on infrastructure until the end of the year, which is expected to boost growth moving forward.

More rate cuts seen

According to FMIC, the Monetary Board (MB) of the Bangko Sentral ng Pilipinas (BSP) was also likely to reduce further both the reserve requirements and key interest rates.

"We anticipate the BSP to cut reserve requirement by one to two percent and potentially reduce the policy rate by 50 basis points from current levels," said Arjonillo.

The reserve requirement - the amount of cash a bank must hold in its reserves against deposits made by customers in the Philippines - was currently at 14 percent.

BSP Governor Benjamin Diokno in July 2019 said he wanted the reserve requirement ratio down to single-digits during his term, in line with the pronouncements of his late predecessor former Governor Nestor Espenilla Jr.

Meanwhile, the MB during its last policy-setting meeting for 2019 decided to keep rates at current settings with the overnight borrowing rate at 4.00 percent, the overnight lending at 4.50 percent, and the overnight deposit rate at 3.50 percent.

Arjonillo noted, however, that the reduction in key rates may be offset by overseas concerns.

"This may be offset by inflationary pressures brought about by fortuitous events and geopolitical factors," he said.

In terms of the local stock barometer, Arjonillo said the Philippine Stock Exchange index was projected to climb to 8,600-8900 this year, with a price-earnings (PE) ratio of 16.8-17.4x.

"Corporate earnings are projected to grow by at least 10 percent underpinned by robust macroeconomic fundamentals, supported by low interest rates and low inflation environment," FMIC said. — DVM, GMA News