GDP to grow 8% in 2022 - Stanchart analysts
By LEE C. CHIPONGIAN
The Philippine economy is expected to grow by eight percent this year amid the reopening of more economic-moving sectors that will sustain recovery, according to Standard Chartered (Stanchart) Bank.
Stanchart’s eight percent gross domestic product (GDP) forecast is higher than the government’s target of 6.5 percent to 7.5 percent for this year. It is also higher than its previous forecast of 7.1 percent announced last January. Next year, Stanchart’s GDP forecast is 5.3 percent.
In a press chat on Friday, July 29, market analysts from the British bank said the GDP will expand by 10 percent in the second quarter from 8.3 percent in the first quarter, and this will be followed by an eight percent expansion in the third quarter and six percent in the last three months of 2022. Consumer spending is a major factor amid improving labor market conditions and sustained investments.
Stanchart economist for Asia and the Philippines, Jonathan Koh, said in the balancing act of recovery support and curbing high inflation since it is consumer spending that drives the recovery, the Bangko Sentral ng Pilipinas (BSP) will again increase the policy rate by 50 basis points (bps) in the next Monetary Board policy meeting on Aug. 18, followed by another 25 bps rate hike on Sept. 22.
“BSP will probably hike by another 75 bps to basically contain second-round inflation pressures becoming more entrenched,” Koh told reporters in the virtual chat. He said the BSP is increasing its rates anew “given the elevated and broadening inflation and a hawkish US Federal Reserve.
This will raise the current 3.25 percent BSP rate to four percent by September and Koh said the Monetary Board may stop there. This should temper inflation, currenty at an average 4.4 percent as of end-June, and reanchor it to an expected return to within the two percent to four percent target in 2024.
Koh said the BSP will likely reduce the reserve requirement ratio (RRR) by 200 bps in the fourth quarter, as earlier communicated by the BSP itself. This will not be considered as a monetary policy action but a mere operational adjustment. “It is more operational rather than easing of monetary policy stance,” he said.
For 2022, with an expected eight percent GDP growth, Stanchart expects inflation will further climb to 5.2 percent average rate and slow down to 3.5 percent in 2023. For the month of July, Koh sees inflation between 5.5 percent to 5.9 percent, lower than June’s actual rate of 6.1 percent.
Stanchart head of ASA FX Research, Divya Devesh, said the peso vis-à-vis the US dollar will likely close at P56.50 by end-third quarter and P55.50 by the end of this year.
Devesh noted that the US dollar drivers are changing. In the first half of 2022, the market was pricing the exchange rate based on US Federal Reserve movements. “But, in the second half, the US dollar is being supported because of recession concerns. Investors prefer holding US dollars as safe haven during recession,” he said. He forecasts more upside for the dollar broadly in second half of the year.
Devesh also sees higher dollar buying in the third quarter and is keeping its bearish outlook on the peso for the rest of 2022.
“Main headwinds for the peso is coming from external balance side with a trade deficit that has widened signficantly,” he said. The larger current account shortfall is a key challenge for the peso, he added.
Still, he also said that the peso is not undervalued but “relatively strong.” For the month of August, Devesh said the exchange rate will range between P55 and P56.