January 14, 2020
First Metro Investment Corporation, the investment banking arm of the Metrobank Group, expects the Philippine economy to sustain its growth momentum despite rising global uncertainty.
The country’s GDP will remain strong and will grow by 6.2-6.6% this year on the back of higher domestic demand underpinned by magnified consumer spending and the national government’s catch-up plan to bring infrastructure spending to 5.7% of GDP.
First Metro president Rabboni Francis Arjonillo said, “The Philippine economy will grow faster in 2020 compared to 2019, fueled 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.”
From January to October 2019, tourist arrivals grew 15%, from 5.9 million to 6.8 million. The largest visitors are still Koreans and Chinese, accounting for 23% and 22%, respectively, of total tourist arrivals. This growth is estimated to be sustained this 2020.
Remittances from overseas Filipino workers, which grew 4.6% to 24.8 billion dollars is expected to remain resilient and to maintain its 2-4% growth.
Inflation, which dropped from 5.2% in 2018 to 2.5% in 2019, is predicted to stay low at 2.5-2.8% this year.
The Philippine peso is estimated to trade at P53 to a dollar, lower than its current levels. The weakening of the peso is attributed to the increase in the trade deficit as the government ramps up infrastructure spending this year.
Mr. Arjonillo said, “The local bond market will be trading in a range as several risk factors will affect movements in interest rates. Though we anticipate the BSP to cut reserve requirements by 1-2% and potentially reduce policy rate by 50 basis points from current levels, this may be offset by inflationary pressures brought about by fortuitous events and geo-political factors. The 10-year benchmark bond will range trade between 4.372% and 5.00%”.
The benchmark Philippine Stock Exchange index is projected to climb to 8,600 to 8,900 this year with price earnings (PE) ratio of 16.8x-17.4x. Corporate earnings are projected to grow by at least 10% underpinned by robust macroeconomic fundamentals, supported by low interest rates and low inflation environment.
The debt capital market is anticipated to be very active this year on the back of continued low interest rate environment, solid macroeconomic fundamentals and debt refinancing opportunities for both corporates and banks. Likewise, the equity capital market is seen to gain stronger momentum as corporate earnings are likely to follow the country’s economic expansion. Market developments such as the emergence of REITs, introduction of Short Selling and the implementation of the proposed 25% increase in the minimum public float would spur trading activity in the stock market.