StanChart sees strong GDP rebound in Q2

Published January 23, 2021, 2:00 PM

by Lee C. Chipongian

Standard Chartered Bank (StanChart) said the local economy will bounce back strongly in the second quarter this year by 15.7 percent, driven by consumption and public spending as the economy gradually reopens more in 2021.

StanChart’s Philippine-focused economist, Chidu Narayanan, said Friday he sees the GDP to moderately grow by 2.1 percent in the first quarter this year, 15.7 percent in the second quarter, 5.5 percent in the third quarter and 2.4 percent in the last three months of 2021.

Full-year, the projection is 6.1 percent GDP, lower than the government’s 6.5-7.5 percent estimate.

Narayanan echoed the Bangko Sentral ng Pilipinas (BSP) and other economic managers that the economy will not achieve pre-pandemic GDP growth this year. “It’s just not happening in 2021. We expect that returning to pre-COVID GDP levels (economic output) in 2022,” he told reporters during its yearly media briefing. In the first three quarters of 2020, GDP has contracted by 10 percent because of the pandemic.

Narayanan said the BSP is not likely to reduce the overnight policy rate this year after a 200 basis points cut in 2020, although he does not completely rule out one decision to move rates in the second half. He also said inflation could hit a high of four percent in the second quarter.

 “We do not expect any policy rate cut from the BSP for all of 2021. (They) might cut maybe one more time, likely in the second half, but that is not our base case. We expect that they will keep the rates unchanged for the year,” said Narayanan.

As for inflation path, the bank’s economist said headline inflation might reach four percent in “one month in the second quarter” because of low base from same period last year. Other factors to higher inflation, aside from statistics, is oil prices which are expected to increase and this will push up transportation and inflation. “We could have a higher inflation than we saw in December (3.5 percent),” he said. He added that the BSP however is “not too concern about pick up in inflation.”

Narayanan also sees the BSP resuming the reduction of banks’ reserve requirement ratio (RRR) this year to boost lending growth. “We do expect the BSP will cut (RRR) only once” but lending growth will not increase before this, he said. “If it will happen (RRR cuts) it’s because credit growth has picked up.” He added that further RRR cuts should will sustain excess or influx of liquidity “to ensure there is no tightening of conditions once credit growth picks up.”

In the meantime, bank-transferred remittances sent by overseas Filipinos is expected to also rebound to 3-3.5 percent this year while the exchange rate will continue to favor the peso. This is actually lower than BSP’s four percent projection. “Given that it had contracted very slightly last year, it’s likely to be in the upper end of the 3-3.5 percent range for 2021 … medium term is 3-3.5 percent year-on-year growth for the next few years,” said Narayanan. Factors to push it up is consumption and pent-up demand.

The British bank’s ASEAN and South Asia FX research head, Divya Devesh, said they project the peso-to-the-US dollar to maintain its strength at P48 in the first quarter this year, P49 in the second quarter, and to remain stable at P49.50 in the last half of 2021. Next year, they forecast P50:$1.