The Philippine economy may grow 7.0 percent to 7.5 percent this year, driven by a strong private sector and a recovery in government spending and public construction, according to a forecast by First Metro Investment Corp. (FMIC), the investment banking arm of the Metrobank Group.
FMIC’s forecast is within the government’s 7 percent to 8 percent growth target for the year.
“The country’s economic gains in recent years will be sustained but critical steps have to be undertaken to ensure that these economic gains will continue to benefit us in the long run,” FMIC president Roberto Jaunchito Dispo told reporters in a briefing.
In the same briefing, Victor Abola, economist at the University of Asia and the Pacific (U&AP), said domestic demand will remain robust this year, growing by about 6.5 percent.
Government spending is seen accelerating this year from a weak performance in 2014.
Government consumption and public construction, which includes infrastructure development, fell by 1.6 percent year-on-year in the first three quarters of 2014, resulting in slower economic growth of 5.8 percent in the first nine months.
The resurgence of the manufacturing sector and pre-election spending are also expected to support growth this year.
Abola also said that falling oil prices, coupled with increased domestic spending, could boost gross domestic product (GDP) by 1.2 percent.
He noted that the economy could save about $3.25 billion from falling oil prices while domestic spending is expected to reach P220 billion.
He said the price of West Texas Intermediate (WTI) crude oil could decrease by 33.1 percent from $93.82 per barrel in 2014 to $62.75 per barrel this year, while Brent could drop by 31.6 percent from $99.54 per barrel to $68.08 per barrel in 2015.
With the sharp dive in global oil prices, the inflation rate is expected to soften to 2.7 percent this year, or within the 2 percent to 4 percent target range of the central bank. In 2014, the headline inflation rate averaged at 4.1 percent due to supply side constraints brought by natural calamities and port congestion.
Easing bottlenecks in the supply of goods and a continued rise in consumption are seen to further moderate consumer prices.
On the other hand, remittances from overseas Filipino workers (OFW) are likely to slightly move downward this year because of the effects of declining oil prices on hard hit, oil-producing OFW destinations, Abola said.
The pace of growth of OFW remittances is projected at 4.5 percent to 6 percent in 2015. As of end-October 2014, cumulative personal remittances had risen by 6.7 percent to $22.02 billion.
Abola said the Philippine peso will continue to weaken to average at P45 to P47 to a dollar this year from the P44.39 per dollar average in 2014 as the US currency further strengthens in line with an improving US economy.
The weakening peso, a strong manufacturing industry, and the US economic recovery should support export growth, forecast at 9 percent to 13 percent.
Meanwhile, imports of goods and services will slow to around 2 percent to 5 percent due to a contraction in electronics imports, other raw materials, machinery, and other mechanical appliances, he concluded.