The Philippine economy will go largely unscathed from a likely US Federal Reserve move to raise its key policy rates later this year, given ample financing support from local consumer spending, remittances and low oil prices, UBS Investment Bank said.
Paul Donovan, UBS Investment Bank senior global economist, told reporters in a press briefing on Wednesday the Philippines and other Asian economies are expected to see “relatively limited impact” from any such decision by the US Fed.
“I don’t think a Fed tightening policy will create alarm in the Philippine economy and rates. The Philippine economy is still relying on a stable consumer sector,” Donovan said.
The US Fed has been cool to the idea of raising rates over the past few months, although it has signaled a possible rate hike in September, which causes concern over its impact on the US economy, as well as the eurozone.
Donovan said there may be worry over a steady rebound in oil prices to more normal levels next year, which could fuel inflation to hit 4.2 percent in 2016.
But he added: “In the Philippines, there is modest growth of 6.5 percent [seen]this year, benefiting from lower oil prices and consumer spending. There is a moderation of credit, unlike in neighboring countries in the region. But mainly, it is due to low inflation and a low pricing environment that encourages spending.”
US rate cut a given
The UBS economist said a Fed rate cut is now a given, with the US economy showing accelerating growth, employment and inflation.
Donovan predicts the US will remain the world’s leading economy due to its consumer growth story. The eurozone will be “ending its negative growth” this year, while Asian countries will experience a healthy consumer segment.
“The most important here is structural growth, which is good for a 15 to 20-year time horizon. The Philippines now has a good foundation, but it is important to note for the country to [maintain]this foundation,” he said.
PH attracting foreign workers
“For the long term, the Philippines will grow not so much because of Filipino workers overseas, but because there are a lot of foreign workers like me wanting to work here in this rising economy,” he added.
The Development Budget Coordinating Committee (DBCC) is aiming for GDP growth of between 7 percent and 8 percent for 2015 and 2016 following a 6.1 percent expansion last year. Over the last five years, the Philippines has been growing at an average 6.3 percent.
The Bangko Sentral ng Pilipinas is keeping its inflation target at 2 percent to 4 percent not only for this year, but aims to curb the rate at that level up to 2018.