Business Monitor International, a unit of Fitch Group, on Thursday upgraded its 2018 growth forecast for the Philippines to 6.5 percent from the previous estimate of 6.3 percent, after the gross domestic product expanded 6.8 percent in the first quarter.
BMI, however, warned that growth might slow down in the coming quarters, as monetary conditions were expected to tighten further.
“On the back of a stronger-than-expected real GDP growth performance in the first quarter, we have raised our real GDP growth forecast for 2018 to 6.5 percent from 6.3 percent previously. However, we are sticking to our view that economic growth is likely to moderate over the coming quarters,” BMI said.
“Even as the Philippines continues to enjoy positive demographics, the economy is showing signs of overheating, and we expect the deterioration in the business environment to weigh on private investment,” it said.
BMI said inflation steadily rose to 4.5 percent in April from 4.3 percent in March, which both exceeded the target range of 2 percent to 4 percent set by the Bangko Sentral ng Pilipinas for the year.
BMI said while the Monetary Board increased the benchmark overnight rate by 25 basis points to 3.25 percent on May 10, inflation would likely remain an issue over the coming months.
“We continue to forecast another 25 bps hike to 3.50 percent by the end of the year. Such a move may slow domestic demand and will likely act as a dampener to growth,” BMI said.
BMI said the main drivers of growth in the first quarter were government consumption (which grew by 13.6 percent year-on-year) and fixed capital formation (which increased by 12.5 percent y-o-y).
BMI said both components were driven by President Rodrigo Duterte’s expansionary fiscal policy and were likely to continue to provide support to headline GDP, allowing for growth above 6 percent over the coming quarters.
The Philippine economy expanded 6.8 percent in the first quarter, faster than the 6.5-percent growth a year ago and 6.6 percent in the fourth quarter.
Economic Planning Secretary Ernesto Pernia said the economy could have expanded faster if inflation was more subdued. Inflation in the first quarter settled at 3.8 percent based on the 2012 price index.
The first-quarter performance made the Philippines one of the best performing economies in the region, next only to Vietnam’s 7.4 percent growth.
Yhe Singapore-based Asean+3 Macroeconomic Research Office predicted that the Philippine economy would expand by 6.8 percent this year, one of the fastest in the region.
The 2018 projection was faster than the actual economic expansion of 6.7 percent last year. In 2019, AMRO expects the country’s growth to hit 6.9 percent.
AMRO said this year, the Philippines could outperform China (6.6 percent), Indonesia (5.2 percent), Japan (1.3 percent), Malaysia (5.3 percent), Singapore (3 percent), Thailand (3.9 percent) and Vietnam
(6.6 percent). Only Myanmar is seen to grow faster at 7 percent this year.