Barclays cuts Philippine inflation forecast to 2.2% in 2016

MANILA, Philippines - UK-based investment bank Barclays lowered the inflation forecast for the Philippines as the continued slide in oil prices in the world market is seen to cushion the impact of the El Niño weather disturbance.

In its emerging Asia focus entitled “Even lower oil, even more policy easing,” Barclays slashed the inflation forecast of the country to 2.2 percent instead of 2.4 percent this year.

The country’s inflation eased to a 20-year low 1.4 percent last year from 4.1 percent in 2014 amid stable food pries as well as cheaper utility rates brought about by the softening oil prices.

Barclays lowered its inflation forecast for Asia Pacific to 1.9 percent instead of 2.2 percent and for emerging markets in Asia to 2.2 percent instead of 2.5 percent this year.

 “We have lowered our 2016 forecast inflation for the region substantially, cutting it to 1.9 percent from 2.2 percent. Consumer price index/inflation in Asia moderated throughout 2015, and we see a very gradual pick up in 2016, partially driven by El Niño weather conditions,” the investment bank said.

It explained the prospect of a longer period of even lower crude oil prices prompted Barclays to change its Asia Pacific forecasts as it now expects oil prices to average $37 per barrel this year.

Barclays pegged its gross domestic product (GDP) growth forecast for Asia at 5.3 percent and for emerging markets in Asia at 5.9 percent this year.

For the Philippines, the investment bank also retained its GDP growth forecast at 5.5 percent. The country’s GDP expansion slowed down to 5.8 percent last year from 6.1 percent in 2014 due to weak global demand and lack of government spending.

Economic managers have penned a GDP growth of between seven percent and eight percent for 2015 and 2016.

Rahul Bajoria, regional economist at Barclays, said the investment bank is retaining its GDP growth forecast this year despite the stronger-than-expected expansion of 6.3 percent booked in the fourth quarter of last year from the revised 6.1 percent in the third quarter.

 “We remain comfortable with our 2016 growth forecast of 5.5 percent, as upside risks from higher government and investment spending are mitigated by downside risks from a deteriorating external economy, which is weighing on export of goods and services,” Bajoria said.

He pointed out the strong finish last year reaffirms that the Philippines is in a sweet spot of robust growth and low inflation.

The economist reiterated the Bangko Sentral ng Pilipinas (BSP) would now tweak interest rates in the second quarter of next year instead of the third quarter of this year.

 “On the monetary policy front, we continue to expect BSP’s next policy move to be a hike, though we only see a first hike coming in the second quarter of 2017. We think the central bank is likely to hike when growth has recovered sufficiently and inflation is high enough to justify an increase in interest rates,” he said.

Although there is external uncertainty in the form of the US Federal Reserve rate hike cycle, he added the Philippines’ strong external position and low level of short-term debt provide BSP with enough policy space to maintain an accommodative stance even if US rates head higher.