Growth seen at 6.7% amid inflation risks

A woman browses the prices of goods at a local grocery in this Bloomberg file photo.

THE Philippines’s economic growth will continue to be robust despite expectations that inflation could linger this year and most of next year, according to Japan-based Mitsubishi UFJ Financial Group (MUFG).

In a virtual briefing on Wednesday, MUFG Global Market Research Senior Currency Analyst Jeff Ng said the country’s GDP growth is seen to average 6.7 percent this year before slowing to 6 percent next year.

Inflation, Ng said, is expected to average 5.5 percent this year before slowing to 3.9 percent next year. However, he said, Filipinos may start seeing a tapering off of inflation in the coming months as prices of commodities stabilize.

“Maybe the prices have already increased but the number will stay with us for the rest of the year and also for the majority of next year. But I think in terms of the month on month, [it’s] is starting to look more stable,” Ng said.

“So I think that’s one positive. We might be reaching the worst number in the coming few months before the headline inflation then starts to moderate,” he added.

However, given the high inflation environment, Ng said the BSP is expected to make another 50-basis-point (bps) increase this year. This will be on top of the 75 bps it is expected to implement on Thursday.

“Perhaps there could be another 50-basis-point rate hike for December but we have to firm up our view based on the latest developments and latest inflation numbers. I think the BSP has accelerated the pace of its rate hikes since July when the inflation numbers have started (to spike),” Ng explained.

Meanwhile, MUFG also expects the country’s current account deficit to reach 5.6 percent of GDP this year before narrowing to 4.8 percent of GDP.

Much of the optimism on the country’s growth this year is driven by the better-than-expected GDP growth of 7.6 percent in the third quarter which benefited from the economy’s reopening.

The reopening of the economy is expected to continue and lead the country to “greater normalization” in the coming year. Ng said the growth of the Philippine economy is no longer a case of base effects.

This is mainly due to the recovery of household consumption. Based on the Philippine Statistics Authority (PSA), household final consumption expenditure grew 8 percent in the third quarter and averaged 8.9 percent in the past three quarters this year.

The recovery of consumption is expected to continue next year when Philippine net exports are also expected to rebound. Ng said the global logistics situation is improving and could pave the way for greater global trade next year.

“I think it’s still looking very positive given all these trends and despite all the headwinds we have suffered,” Ng said of the country’s overall growth.

Earlier, the National Economic and Development Authority (Neda) said the government is now within striking distance of its GDP growth target for 2022 after the PSA announced that the economy grew faster in the third quarter.

The PSA reported that the economy expanded by 7.6 percent in the third quarter. This is faster than the 7.5 percent posted in the second quarter of the year and the 7 percent recorded in same period last year.

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