Philippine economy expected to grow in 2020

24 Jan 2020

Philippine economy Economic growth in the Philippines is expected to improve in 2020 compared to last year, increasing by up to 6.6%, amid a projected surge in consumer and infrastructure spending.

On Tuesday, First Metro Investment Corp. president Rabboni Francis Arjonillo said that local gross domestic product (GDP) is expected to expand by 6.2% to 6.6% in 2020. 

Speaking to reporters at a press conference in Taguig City, Arjonillo said: "The Philippine economy will grow faster in 2020 compared to 2019, fuelled by stronger consumer spending, easing monetary conditions and growing tourism sector.

"Consumer spending, which accounts for 66% of the country's GDP, will expand further driven by robust government and infrastructure spending, higher employment rate, manageable inflation, and robust OFW remittances," he added.

This arrives following a lower-than-expected growth rate recorded during the first six months of 2019, for which the delayed passage of the national budget was blamed. 

The 2019 budget was not approved by congress within the deadline, and President Rodrigo Duterte was only allowed to sign the General Appropriations Act in April. 

Economic officials in the Philippines decided to adopt an aggressive stance towards infrastructure spending until year end, in a bid to catch up for lost time and boost growth in the future. 

The FMIC said that the Monetary Board (MB) of the Bangko Sentral ng Pilipinas (BSP) will likely trim both reserve requirements and interest rates in the future. 

"We anticipate the BSP to cut reserve requirement by one to two percent and potentially reduce the policy rate by 50 basis points from current levels," said Arjonillo.

The reserve requirement, which refers to the amount of cash a bank must have in its reserves against deposits made by Philippine clients, currently stands at 14%

In July 2019, BSP Governor Benjamin Diokno said he wanted to reduce the reserve requirement percentage to single digits during his term, in keeping with the promises of his late predecessor Governor Nestor Espenilla Jr. 

During its most recent policy meeting in 2019, the MB opted to keep rates unchanged, with the overnight borrowing rate at 4.00%, the overnight lending rate at 4.50%, and the overnight deposit rate at 3.50%.

However, cutting key interest rates may be disrupted by overseas threats, Arjonillo noted. 

"This may be offset by inflationary pressures brought about by fortuitous events and geopolitical factors," he said.

With regards to the local stock barometer, Arjonillo said that the Philippine Stock Exchange Index was forecast to rise to 8,600-8,900 in 2020. 

"Corporate earnings are projected to grow by at least 10 percent underpinned by robust macroeconomic fundamentals, supported by low interest rates and low inflation environment," FMIC said.