THE Sun Life Asset Management Co. Inc. (Slamci) said it has revised its average gross domestic product (GDP) forecast for the Philippines to 6.4 percent from 7 percent, on the back of higher-than-expected inflation.
Sun Life of Canada (Philippines) Inc. Chief Investments Officer Michael D. Enriquez said the company revised its growth forecast for the country to an average of 6.4 percent for 2018 from the original 7 percent because of the higher-than-expected inflation print posted by the economy for the first few months of the year.
“Inflation is quite alarming and everybody is feeling inflation at the moment. Higher inflation is slowing down expectations of GDP growth,” Enriquez said during Slamci’s 2019 Market Outlook and Bright Offerings news conference at the Makati Shangri-La hotel on Tuesday.
The GDP forecast of Slamci is lower than the GDP target of the Development Budget Coordination Committee (DBCC) for the year of 7 percent to 8 percent. For 2019, the company expects GDP to revert to an average of 6.6 percent, as inflation is expected to normalize by next year.
“We are expecting GDP for the year to average 6.4 percent, adjusted lower from the 7-percent forecast,” he added.
As of August 2018, the country’s headline inflation rate increased to 6.4 percent on the back of higher food prices, coming from 5.7 percent in July, and also higher year-on-year with an inflation print of 2.6 percent.
Slamci sees headline inflation for 2018 to hit an average of 5 percent and revert to around 4.1 percent in 2019. The BSP earlier said it expects inflation to hit 4.3 percent for 2019, as well as average around 5.2 percent this year.
“Our headline inflation will average 5 percent. In 2019, we expect inflation to revert to 4.1 percent,” he said.
Enriquez said the passage of the rice tariffication bill, apart from the move of the Bangko Sentral ng Pilipinas (BSP) to increase key policy rates, will impact positively in terms of taming inflation, among others.
In July, the Department of Finance (DOF) expressed optimism that Congress would pass soon enough the rice tariffication bill, after President Duterte has declared the proposal to liberalize rice imports an urgent and priority measure, in line with efforts to ease inflation and bring down prices of the food staple by as much as P7 per kilo.
The Monetary Board last month decided to hike key policy rates for the fourth consecutive time this year in an effort to pull down high consumer prices, raising the interest rate on the BSP’s overnight reverse repurchase facility by 50 basis points to 4.5 percent effective September 28.
“I think the biggest component is the rice tarriffication. If they continue to raise rates, it will not address the problem…they need to address the rice and oil issues,” he added.
He said the company sees inflation peaking during the first quarter of 2019, as the total effects of the recent typhoons will have to still be taken in to account.
“In our view, it should peak sometime first quarter 2019…The typhoon effects will not be captured in September…There might be some adjustments. I’m hoping that it will peak soon. But for this year probably it will not peak,” he added.
Enriquez added the company forecasts inflation levels for the month of September to hit above 7 percent.