First Metro Investment Corp., the investment banking arm of the Metrobank Group, on Wednesday retained its 2022 gross domestic product growth projection of 6 percent to 7 percent despite the global and domestic challenges, particularly the elevated inflation, continuing war in Eastern Europe, rising interest rates in advanced economies and the slowdown in China.
“At the start of the year, we projected the growth acceleration of the Philippine economy but so many unexpected events happened in the last six months that abated the strong growth momentum of 8.3 percent in the first quarter of the year,” First Metro president Jose Patricio Dumlao said in an online midyear economic briefing.
“We still believe, however, that the economy will continue to outpace our peers in the region and will expand by 6 percent to 7 percent this year,” Dumlao said.
He said economic growth would be driven by sustained domestic demand—household consumption, government and investment spending—which grew by 11 percent in the first quarter of the year.
“The country’s macroeconomic fundamentals remain sound, and we have a much better economic situation now than in the past crises,” Dumlao said.
“Our gross international reserves remain high at $106.8 billion or about 9-months’ worth of imports; external debt-to-GDP is still low at 27 percent; and our trade deficit reached a record high of $43.2 billion in 2021 and could increase to $50 billion this year, which is about 70 percent of our exports,” Dumlao said.
He said inflation would remain elevated at 5 percent to 5.2 percent on the impact of higher oil prices globally, which affect the domestic prices of oil, food and commodities.
First Metro’s GDP forecast this year is slower than the revised 6.5 percent to 7.5 percent projection of the interagency Development Budget Coordinating Committee.
DBCC last week adjusted its 2022 GDP growth projection to a range of 6.5 percent to 7.5 percent from 7 percent to 8 percent previously, taking into account the domestic and external headwinds that may impact the economy.
The adjustment was the second time the growth target range was reduced for 2022. The original target for the year was 7 percent to 9 percent before it was lowered to 7 percent to 8 percent in the previous DBCC meeting.
The economy grew by 5.7 percent in 2021, a turnaround from the 9.6-percent contraction in 2020 amid the pandemic.
First Metro’s macroeconomic forecasts show that the peso will still be in depreciation mode on higher interest rates in the US and increasing trade deficits. It is projected to hover at 54 to 55 against the US dollar by the end of the year.
The gross international reserves are seen to settle at $104 billion by yearend, down from $108 billion a year ago. Remittances, which increased to $35 billion in 2021, are forecast to rise by 3.5 percent to 5.5 percent this year. Revenues from BPOs reached P28 billion in 2021 and will continue to increase by at least 6 percent in 2022, they said.
“As central banks continue to rein in elevated inflation, interest rates are expected to rise from its current levels by an average of 100 basis points across the curve,” Dumlao said.
University of Asia & the Pacific economist Victor Abola said he does not see any credit rating downgrade for the Philippines in the near term, saying the country’s external sector remained strong despite the headwinds.
“I don’t see any credit rating downgrade because we have a better external sector than the rest of ASEAN,” Abola said, citing the steady source of inflows from OFW remittances.