THE ECONOMY is likely to grow between 5.5% and 6.5% this year, with recovery prospects mainly supported by infrastructure spending and various tax reform initiatives, according to First Metro Investment Corp. (FMIC).
The main risks to growth are uneven application of quarantine rules and a strong peso, according to economist Victor A. Abola of the University of Asia and the Pacific, FMIC’s partner in issuing regular economic outlooks.
“We will be coming from a low base. We expect a negative print in the fourth quarter and possibly in the first quarter of this year,” Mr. Abola said at a virtual briefing Thursday.
FMIC’s growth estimate is weaker than the government’s 6.5% to 7.5% forecast for the year.
In 2020, FMIC estimates a contraction of between 9% and 10%, against the 8.5% to 9.5% contraction projected by economic managers.
Gross domestic product (GDP) fell 10% in the first nine months of 2020, following a GDP contraction of 11.5% in the three months to September.
This year, growth prospects will be supported by benign inflation, key infrastructure projects, the vaccine rollout, and more localized quarantines rather than blanket restrictions applied to large areas, FMIC said.
Mr. Abola said that sectors that are faring relatively well despite the pandemic are trucking, delivery, death care, animal slaughter and processing, food and beverage, construction, medical services and hospitals, residential care facilities, and training services.
On the monetary policy side, Mr. Abola said the Bangko Sentral ng Pilipinas (BSP) has room to conduct further easing withs inflation likely to subside.
He said another 25 basis points (bps) reduction is possible “after inflation rate goes down below 2.5%… in the month of February or March.”
FMIC expects inflation to rise to 2.7% this year from 2.6% in 2020. This is below the 3.2% projected by the central bank.
The key policy rate or the overnight reverse repurchase is currently at 2% after the BSP slashed rates by 200 bps last year. This has affectively led to negative real interest rates as headline inflation in December was 3.5%.
BSP Governor Benjamin E. Diokno has said that monetary authorities will maintain an accommodative policy stance until a growth trajectory of 6.5% to 7.5% is regained. — Luz Wendy T. Noble