Economic growth could pick up to 7.0-7.2 percent this year on the back on higher infrastructure and consumer spending as a result of a new tax reform law, a unit of Bank of the Philippine Islands (BPI) said on Friday.
“We are extremely optimistic of the growth of the Philippine economy,” BPI Asset Management and Trust Corp. (BPI AMTC) Vice-President and credit and research head Carlos A. Jalandoni said in a media briefing.
“I am very excited about the Philippines because … a tax reform was passed,” he added, noting that revenues from higher taxes would allow the government to implement its “Build Build Build” program.
Lower personal income taxes included in the law, meanwhile, are expected to spur household spending.
“We finally have a government which has enough ammunition to increase infrastructure spending. Even if the government will not be able to get the [estimated]P130 billion [in revenues], it will give enough funds for the government to improve social services, improve infrastructure spending and provide more stimulus to consumption,” Jalandoni added.
Infrastructure project implementation, he also said, would benefit the financial sector via increased loan growth.
“This year loan growth is expected to basically reach 20 and even 25 percent for some banks due to the government’s ‘Build Build Build’. We have also local elections coming in 2019 so the banks will continue to fund,” Jalandoni said.
While higher taxes will lead to higher inflation, he said they were “not worried” as the rise in consumer prices has remained manageable,
For 2018, BPI AMTC expects inflation to settle at around 3.6 to 3.8 percent, within the government’s 2.0-4.0 percent target.
“Inflation will have to go up but we are not worried as inflation last year was quite low. In fact, the [2018 estimate] is still within the Bangko Sentral’s target,” Jalandoni said.
The peso’s expected weakening, he also said, can be viewed in a positive light.
“[W] should learn to accept the fact that a weak currency is a reflection that the economy is growing,” Jalandoni said.
“It (the economy) is growing on the back of more infrastructure investments and consumer spending. Here, unfortunately, we don’t make a lot of electric cars, machineries. We import more of these stuff and as we import more, the peso has to reflect that,” he added.
The currency was forecast to settle at P51.90 per dollar this year.
Strong economic growth coupled with the “still muted inflation risk”, Jalandoni claimed, has created an environment to invest and “take risk”.
“So you have all this growth but you still have no inflation. That is very important as a lack of inflation despite steady growth creates the perfect environment, the perfect ingredient for risk-taking and that is what pushed the stock market last year,” he said.
The Philippine Stock Exchange index (PSEi) closed at a record high of at 8,558.42 during the last trading day of 2017, a run that was extended to 8,923.72 just this Tuesday.
Jalandoni said BPI AMTC expected the PSEi to reach 9,300 this year.