The economy will remain among Asia’s strongest in the fourth quarter despite a likely high interest rate as prices are expected to remain pronounced because of strong consumer demand and robust employment.
Rizal Commercial Banking Corporation, or RCBC, chief economist Michael Ricafort said the growth forecast is still among the fastest in the region.
Foreign market indicators are improving as well.
Wall Street stocks rebounded on Friday to join major European indexes in positive territory as traders digested a hotter than expected US jobs report.
The latest employment figures showed that the US economy added 336,000 new jobs last month, virtually double what was expected and raising concern that interest rates would be kept higher for longer.
Labor Department data also showed that the US unemployment rate stayed unchanged at 3.8 percent, maintaining pressure on policymakers looking to cool the economy.
But on the plus side for traders, who now put the prospect of higher rates before year-end at just over 40 percent according to CME Group, wage growth fell back slightly.
The employment report initially pushed major US indexes into the red, as markets assessed the prospect that a strong job market could pressure the Federal Reserve to hike interest rates again to tackle stubborn inflation.
While a higher interest rate aims to slow consumption, Ricafort said the continued flow of remittances from overseas Filipino workers or at least a 3 percent growth yearly will still support substantial levels of consumer spending, especially during the Christmas season.
“That more than $40 billion a year. That’s the fourth largest in the world after India, China and Mexico,” the economist said.
He added more Filipinos or 800,000 could earn from business process outsourcing or BPO this year as the industry’s revenue could rise from $32.5 billion to $59 billion based on data from the Contact Center Association of the Philippines.
The World Bank recently downgraded this year’s growth to 5.6 percent from 6 percent due to inflation risks, apart from a lower government spending and weaker demand for exports.
However, it is still higher than China’s 5.1 percent, Indonesia’s 4.9 percent and Malaysia’s 4.3 percent growth forecast.
Ricafort said the Bangko Sentral ng Pilipinas might raise its policy rate this year to counter inflation and limit it to a four percent increase by year’s end, after accelerating 6.1 percent higher last month.
Moderating prices is key
“The BSP is working to bring down prices of goods and services. As an unintended consequence, the economy could slow down. Borrowing costs for business owners also increase and consumer demand weakens,” he said.
Ricafort said global oil prices have started falling which could discourage the central bank from raising its rate drastically.
“Global oil prices have declined to $82 to $83 per barrel from a peak of $95 last month,” the economist said.
He also expected a downtrend in rice prices starting this month as he said local farmers have started their harvests.
We are now fully reopened. Students are also back in schools which encourages putting up food businesses. Labor market in the US also improved which will affect exports trade.
“Inflation quickened last month mainly from higher prices of rice which accounted for nearly 9 percent of the inflation basket and grew 17 percent year-on-year,” Ricafort said.
Another growth area is tourism, which Ricafort said saw 4 million foreign visitors last month, nearing the 4.8 million full-year target of the government.
He added higher productivity among Filipinos is also expected as the country’s unemployment rate declined to 4.4 percent in August from 4.8 percent in July, based on data from the Philippine Statistics Authority.
Moving forward, Ricafort said the government must improve science and technology education for higher quality jobs and increase spending on infrastructure amid the full reopening of most economies.
“We are now fully reopened. Students are also back in schools which encourages putting up food businesses. Labor market in the US also improved which will affect exports trade,” he said.
Ricafort added the government could continue distributing financial and other assistance to farmers to control inflation.
He believed inflation rate will approach 3 percent next year, close to the ideal 2 percent for a healthier economic growth.