First Metro: PH economy poised to switch from resilience to growth

June 14, 2022

First Metro Investment Corporation expects the Philippine economy to switch to the growth phase towards the end of the year.

First Metro president Jose Patricio Dumlao said, “Although early signs of recovery at the onset of 2021 were halted due to the surge of COVID-19 cases and subsequent lockdown of NCR Plus 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. And now, we are seeing our economy switching from resilience to growth.”

After contracting by 9.6% in 2020, the country’s GDP is expected to grow by 5-6% percent by the end of the year. The faster global economic recovery, accelerated vaccine mobilization, sustained supportive fiscal and monetary policies, and the government’s commitment to push infrastructure projects are expected to fuel growth. With its high multiplier effect, the infrastructure spending program of the government will be one of the main drivers of growth.

“Our dependable and resilient OFW remittances, which grew 13% year-on-year in April this year, and BPO 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 next year is likewise anticipated to support growth,” Dumlao said.

Inflation is projected to remain elevated at 4.2% even if food prices have adjusted downward. The upward movement is due mainly to high crude oil prices and supply chain bottlenecks.

The peso will depreciate slightly because of the stronger demand for imports. It is projected to trade within P49-50 to a dollar.

In the debt market, longer tenors are opening up, which means investors are willing to take on more risks for better returns. With excess liquidity of P2.12 trillion, interest rates should be down but inflationary pressures are pulling it up. For the rest of the year, interest rates are expected to slightly increase from its current levels.

In the equities market, positive investor sentiment is back as evidenced in the success of recent issuances. A healthy pipeline of offerings and a new asset class, the REIT, are expected to stir excitement in the investing community. The rise of the retail investors in the local equities market is driving liquidity and moving the market. Foreign investors are set to come back as favorable market indications come to light. The Philippine Stock Exchange main market index (PSEi) has the potential to reach the range of 7400-7800 by the end of the year with price earnings ratio (PE) of 17x. Corporate earnings are projected to deliver 25% growth by end of the year.

Dumlao added, “We are seeing a lot of positive signs and reasons to believe that the country is on its way to recovery but it is not to say that we should let our guards down. Still, the biggest risk to our outlook is the uncertain course of the pandemic. We should continue to be cautious and mindful and do our share in controlling the spread of the virus. We look at the recent rating outlook downgrade by Fitch Ratings constructively. It is more of a reminder that economic recovery requires hard work rather than a negative warning. It is a useful heads up too about the many pitfalls that line up the path to growth and the myriad of the country’s existing economic strengths to overcome these.”