The Philippines has returned to its so-called economic sweet spot, and is expected to sustain this position of strong growth and low inflation in the next few years, ING Bank economists said on Friday.
In their 2015 economic briefing in Makati City, ING Bank economist Joey Cuyegkeng said the country has gone back to its “optimum” point
after going through structural issues for the most part of last year.
The ‘sweet spot’ of the economy is defined as the convergence of high growth and low inflation.
The country’s economic performance rebounded in the fourth quarter of the year when gross domestic product (GDP) grew 6.9 percent from 5.3 percent recorded in the third quarter. Inflation also slowed to 2.7 percent in December.
Cuyegkeng said this “sweet spot” is likely to be sustained in the next few years, assuming the government has learned its lesson and will avoid underspending this year.
He projected the GDP to grow 6.7 percent this year, higher than the 6.1-percent hike posted in 2014.
GDP growth in 2016, Cuyegkeng said, will hit 7 percent.
As for inflation, Cuyegkeng said it will remain tame this year at 2.8 percent due to lower oil prices. The forecast is lower than the 4.1-percent actual inflation recorded last year. Latest data from the Philippine Statistics Authority (PSA) showed that January inflation reached 2.4 percent.
Next year, the ING economist projected consumer prices to hit 3.2. While this is faster than the forecast for 2015, the figure is still within the government’s target for 2016.
The Bangko Sentral ng Pilipinas (BSP) is targeting to keep inflation within a range of 2 percent to 4 percent for 2015 until 2018. Cuyegkeng said this indicates that the BSP is confident that the country’s inflation would remain tame in the next three years.
The ING economist, however, warned of risks ahead, such as the volatility in local financial markets, due to the developments in the US. The reaction of markets will depend on the forward guidance of the US Federal Reserve this year.
As such, Cuyegkeng said that ING has penciled in a policy-rate hike at the end of the third quarter of 2015.
In the upcoming meeting, however, he expects the BSP to keep rates steady. The BSP will hold its first monetary-policy meeting for the year on Thursday, February 12.