FMIC, UA&P see economy growing 5-6%, PSEi hitting 7,800

Published by rudy Date posted on July 15, 2021

By: Doris Dumlao-Abadilla, Philippine Daily Inquirer, 15 Jul 2021

After a rough start this year, the Philippine economy is seen regaining lost ground and is likely to attain a full-year growth of 5-6 percent, in turn perking up corporate earnings and stock prices.

This is based on the mid-year macroeconomic briefing of First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P), which expressed confidence in the country’s recovery from the worst recession in history seen last year.

The improving macroeconomic backdrop is seen to support a 25-percent growth in full-year corporate earnings, that will allow the main-share Philippine Stock Exchange index (PSEi) to climb to at least 7,400 to as high as 7,800 by year-end.

“Although early signs of recovery at the start of 2021 were halted due to the surge of COVID-19 cases and subsequent lockdown of NCR plus (National Capital Region and surrounding provinces) in March, our economy remained resilient. The country has maintained its credit ratings and we continue to have a strong and healthy banking system, ample foreign reserves and adequate fiscal stamina. Now, we are seeing our economy switching from resilience to growth,” FMIC president Jose Patricio Dumlao said.

The growth forecast range is not too far from the 5.5-6.5 percent outlook given by FMIC and UA&P early this year prior to the resurgence of new COVID-19 cases. With the rollout of vaccination programs and the decline in daily cases, some of the mobility restrictions have been relaxed.

Faster global recovery

In 2020, the country’s gross domestic product (GDP) contracted by 9.6 percent due to disruptions caused by the pandemic. In the first quarter of this year, GDP continued to shrink albeit at a slower year-on-year pace of 4.2 percent.

FMIC and UA&P see the faster global economic recovery, accelerated vaccine mobilization, sustained supportive fiscal and monetary policies, and the government’s infrastructure push driving recovery moving forward. With its high multiplier effect, infrastructure spending is also seen as among the main drivers of growth.

OFW remittances

“Our dependable and resilient OFW (overseas Filipino worker) remittances, which grew 13 percent year-on-year in April this year, and BPO (business process outsourcing) services are anticipated to perform even better. As employment starts to pick up and more people get inoculated, consumer confidence is also expected to improve. The upcoming election is likewise anticipated to support growth,” Dumlao said.

Inflation is projected to remain high at 4.2 percent even if food prices have adjusted downward, overshooting the upper end of the 2-4 percent target range of the Bangko Sentral ng Pilipinas.

The outlook on inflation was the only indicator that FMIC and UA&P had adjusted compared to the beginning of the year, when they expected an inflation rate of only 2.7 percent. UA&P economist Victor Abola noted that nobody had predicted the upswing in global oil prices, alongside supply chain bottlenecks.

Because of the stronger demand for imports, the peso is expected to trade within 49-50 level to a dollar. With the US Federal Reserve poised to unwind monetary stimulus in the coming years, Abola said the peso could further depreciate against the greenback next year.

In the debt market, longer tenors are opening up, which means investors are willing to take on more risks for better returns. Despite an excess liquidity of P2.12 trillion, inflationary pressures are seen to slightly increase interest rates for the rest of the year.

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