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Shaping up: Philippines economy looks solid as 2019 draws to a close

With one of the fastest growth rates in Asia, good news on the job front, plus lower than expected inflation in September, the Philippines economy approaches the year’s end in good condition.

The Philippines’ economy looks set to end 2019 on a high note, with inflation continuing its monthly downward trajectory, falling from 1.7% in August, to 0.9% in September, together with strong job growth, and government spending on the up.

The nation’s economic performance looks set to continue in the short-term, as falling inflation and lower interest rates will encourage investment and consumer spending in the second half of 2019, and beyond. Considering these factors, First Metro Corporation (First Metro) expects the country’s GDP growth to sit between 6% and 6.5% by year’s end.

In support, the Bangko Sentral ng Pilipinas (BSP), lowered its 2019 average inflation rate prediction from 2.6% to 2.5%, well within its target range of between 2%-4%, while forecasting 2.9% for 2020 and 2021. As of September, the nation’s year-to-date inflation stood at 2.8%.

Since rice comprises the largest tranche in compiling the nations’ inflation figures, a drop in the farmgate and retail price of rice – attributed to the effect of the government’s rice tariffication scheme – was central in helping inflation stay on track.

To stabilise the economy further, on September 26, the BSP cut its benchmark interest rate for a third time this year. It’s widely anticipated the move should add extra protection against a slowing global activity. Looking ahead, further cuts are unlikely for the rest of the year. At the same time, the central bank has cut its reserve requirement ratio to 14%, effective December.

Inflation rates Year-on-Year


New employment figures showed strong job growth of 2.3 million (July 2018-July 2019), a three and a half year high, as well as being the second highest ever recorded. Adding to this encouraging development is an uptick in government spending, and a 3.7% bump in exports for July. Exports attained positive territory (April-July), due mainly to increased shipments to the European Union, US, Japan and China.

However, First Metro and the University of Asia and Pacific’s Capital Market Research unit’s latest report, The Market Call, takes a more nuanced views on the performance of the financial markets. The bank retains an optimistic position on the bond market while taking a neutral stance in the equities space, with predictions that the PSEi will continue trading in a narrow range of 7,750-8,050 until even more positive economic and corporate developments emerge.

Global events – US recessionary fears and Germany’s slowing growth – have caused some turbulence in the bond markets. After slipping in August, government bond yields rebounded in September, but the domestic bond market remained active with robust trading volumes.

Despite a rebound in early September, thanks to inflation and the BSP’s actions on RRR and policy rates, local 10-year Treasury bonds and 91-day T-bills are expected to trade below 4% and below 3%, respectively, for the remainder of the year.

In the corporate bond space, trading eased in August, after a July peak, although trading still remained brisk with a 154.7% gain – more than double its year-on-year figure. In the primary markets space, First Metro forecasts plenty of action in corporate bond issuances in the last quarter of the year, aided by interest rates being at a three-year low.


Despite the Philippines having one of the fastest growth rates in the region, plus economic resilience, strong macro-economic policies, slowing inflation, and a low national debt, as always, challenges persist.

Ongoing US-China trade tensions will have a ripple effect; strong gains in the US dollar against most emerging markets currencies (with the exception of the Thai baht); and in First Metro’s view, the nation’s lingering trade deficit; plus the need to increase its gross international reserves will all continue to exert a downward pressure on the peso, resulting in it staying in a range within P52-P53 for the last quarter of 2019.

Given general sentiment about a slowing global economy, First Metro says the Philippines still needs to build its US dollar reserves which, as of September 2019 stood at $86.2 billion, in order to cushion the nation against a worldwide slowdown. This being said, the nation is heading into 2020 in bullish spirit.

First Metro’s full report is available here.

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