Sun Life trims Philippine growth forecast to 6.4%

MANILA, Philippines — Sun Life of Canada (Philippines) Inc. has cut its 2018 economic growth forecast for the Philippines to 6.4 percent due to the slowdown in consumption as a result of elevated inflation.

In a press briefing, Sun Life chief investments officer Michael Gerard Enriquez said the company has revised its 2018 gross domestic product (GDP) growth forecast to 6.4 percent from the previous estimate of seven percent. This is also lower than the government’s GDP expansion target of seven to eight percent for the year.

For 2019, Sun Life sees economic growth recovering slightly to 6.6 percent.

“We’re expecting GDP for the year to average about 6.4 percent. This has been adjusted lower from our original seven percent forecast,” Enriquez said.

Sun Life made the adjustment following the slower-than expected economic growth in the second quarter, which settled at six percent. This put the average GDP growth in the first six months to 6.3 percent.

According to Enriquez, economic growth was driven mainly by government spending, which rose by 11.9 percent during the period, and investments, which grew by 20.7 percent. However, he said GDP growth was dampened by rising inflation.

“These two things contributed strongly, if you dissect GDP. But it was just the consumption that was sidelined by higher inflation that brought down the GDP,” Enriquez said.

Inflation hit a nine-year high of 6.4 percent in August, bringing the year-to-date headline inflation to 4.8 percent. This is higher than the government’s target range of two to four percent.

Enriquez said Sun Life expects inflation to average five percent by year-end, and to normalize to 4.1 percent in 2019. These are lower than the revised inflation forecasts of the Bangko Sentral ng Pilipinas (BSP), which are now at 5.2 percent for 2018 and 4.3 percent for 2019.

The Sun Life official said there are still upside risks to inflation, including the impact of Typhoon Ompong, and possible second round effects from transport fare and wage hikes.

He said inflation would likely touch seven percent in September, and trend slightly higher to peak in the first quarter of 2019.

On exchange rate, Enriquez sees the peso recovering by the end of the year to settle at the 53.8 to $1 level, mainly due to the expected surge of remittances from overseas Filipino workers in time for the holiday season, as well as the planned initial public offering of San Miguel Food and Beverage Inc.

Sun Life expects the peso to further strengthen next year to reach 52.9 to $1.