PH economy seen facing risk of overheating Featured

PH economy seen facing risk of overheating

By: Ben O. de Vera - Reporter / @bendeveraINQPhilippine Daily Inquirer 

 


Singapore’s biggest bank has warned that amid robust growth, the Philippine economy is at risk of overheating.

In a report last week, DBS Ltd. said it expected the Philippines’ macro fundamentals “to remain strong, with infrastructure at the forefront of growth.”

“While growth is unlikely to surprise on the upside, progress from tax reform, infrastructure spending and a potential delay in interest rate hikes should keep sentiment positive in the market,” DBS said.


Also, DBS said that “with all eyes now set on the Philippines and how it is progressing under the Duterte administration, it is timely to look at potential growth pockets and bright spots that investors can delve into given the country’s infrastructure-driven economy.”

According to DBS, the plan to ramp up infrastructure spending will augur well for economic growth in the long-term.

Earlier qualms about political risks “should be less of a focus now as economic reforms have been rolled out,” DBS added.

However, DBS warned that “the Philippine economy is displaying early signs of overheating.”

“GDP [gross domestic product] growth has been running at close to 7 percent year-on-year for the past year. Headline CPI [consumer price index] inflation has been above 3 percent year-on-year since February, up from sub-2-percent levels a year ago. Investment growth is very strong; gross fixed capital formation expanded by more than 20 percent year-on-year in 2016,” DBS noted.

“Hence, there is a case for the [Bangko Sentral ng Pilipinas] to tighten monetary policy in the coming months. The BSP has, however, refrained from lifting the policy rate. Philippine peso-market interest rates have responded by drifting higher over the past year, in contrast to flat to lower rates in many other Asian economies,” according to DBS.

“Clearly, Philippine government bonds have underperformed their Asian peers over the past few months. The carry environment has, so far, helped to contain the upside in Philippine government yields. Even so, there is a need to guard against complacency. Philippine government yields can become more volatile when monetary policy starts to address overheating risks,” the bank said.

 

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