Philippine economic growth to outpace China in 2015, says Credit Agricole
MANILA - While it would slow down this year, the Philippine economy will outpace China and the rest of Asia next year, according to Credit Agricole.
In a report, the multinational investment bank said the Philippines' gross domestic product (GDP) will grow at a slower 5.7 percent this year from last year's estimate of 6-7 percent.
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GDP is the amount of final goods and services produced in the country and as such measures economic performance.
But by next year, the Philippines will get back its groove, with GDP seen growing 7.3 percent amid the reconstruction of areas devastated by Typhoon Haiyan (local name: Yolanda).
“Gradually, the post-Yolanda reconstruction will begin to add to growth, and by 2015 the economy will again be running on all cylinders, growing 7.3 percent – above the Chinese level and the most in Asia [excluding] Japan," Credit Agricole said.
The investment bank expects remittances, which has fueled the 5-7 percent growth in household consumption in the last three years, to contribute as much this year.
It also sees government consumption, which expanded 12 percent in the last two years, to rebound as the calamity reconstruction takes off.
Inflation to pick up
With robust growth, inflation is expected to pick up to four percent this year from the estimated 3.1 percent average in 2013.
“The BSP is trying to look through the faster price gains, hoping that they represent a one-off, but will have to be mindful of the potential for pass-through,” Credit Agricole said, referring to the Bangko Sentral ng Pilipinas.
Credit Agricole said the BSP is faced with "a tough task of managing the ripple effects" of the US Federal Reserve's decision to withdraw its economic stimulus.
"We anticipate significant outflows of portfolio capital from the Philippines, which will reduce the availability of funding needed for growth," Credit Agricole said.
100 basis points hike in interest rates
Given this, the BSP would hike its interest rates to a total of 50 basis points starting in the middle of this year, followed by a similar amount next year.
“We expect the BSP to maintain such a policy in [first half of this year]. At the same time, we expect the Philippines to stand out in terms of growth and monetary tightening, and to maintain a solid current account surplus," Credit Agricole said.
With policy tightening this year, the peso is expected to rebound to P43 against the US dollar, allowing the local currency to become one of Asia's best performing. For 2015, the peso is seen to average P42 to the dollar.
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