Philippine economy seen to slow down in 2017

Metro Manila (CNN Philippines, August 1) — British banking giant Standard Chartered expects the gross domestic product (GDP) - the broadest measure of the economy - to grow just 6.5% in 2017, officials said in a briefing on Tuesday. This is a downward revision from the 6.8% it set at the start of the year.

In a separate report, Metrobank pegged its growth forecast at 6.6%.

Both banks' estimates are significantly lower than the 6.9% registered in 2016. They also sit in the middle of the government's target for this year of 6-7%.

Standard Chartered's regional head for economic research Edward Lee said the bank had to trim its growth projections after the first quarter results came out at just 6.4%, dragged down by poor government spending.

Metrobank noted, however, "While the first quarter growth was lower than market expectations, it still showed that the economy is on solid footing as growth still came in above the 6% level."

A pick-up in government spending, steady overseas remittances, recovery in the agriculture sector and the continued strength of the services industry should continue to support the GDP for the rest of the year, it said.

However, the twist is that the infrastructure building spree driving the economy is one of the culprits bringing down the local currency.

As the country imports heavy equipment and construction materials this year, it is buying up more and more dollars to foot the bill. The peso has since sunk to an 11-year low of ₱50.94:$1 in July.

"More infra project roll-outs would mean greater demand for the US dollar on even higher imports… which in turn could mean the peso going beyond the ₱51:$1 level," Metrobank said.

Standard Chartered likewise saw the peso finishing the year at the ₱51:$1 band.

Lee pointed out, however, that while capital importation is putting pressure on the currency, for now, the trade-off is much more important: improved productivity in the economy in the long run.

"This is a short-term phenomenon as the country moves to a higher investment phase," he said.

Both Metrobank and Standard Chartered expect inflation to hit 3.1% this year. It's much higher than the 1.8% in 2016, but it falls well within the central bank target of 2-4%.

While the weak peso and fuel price hikes bring inflationary pressures, analysts said the rebound of the agriculture sector can offset this by bringing down food prices.