BPI on the Philippine economy
After my column two weeks ago about the economic forecast of the Bangko Sentral ng Pilipinas (BSP), I attended the BPI Chinese New Year event which included a briefing of the bank's assessments and projections for 2018. Jun Neri, the chief economist of the bank, made the presentation joined by other top executives of the bank in the open forum. There was dinner and a Feng Shui talk but the main event was the economic presentation.
Unlike the BSP presentation which highlighted the challenging environment and trends, Neri pointed out the positives in the external outlook. The worldwide stock market boom in the U.S., Europe and in Asia had stock indices growing at 7 percent to 36 percent, with the Philippines PSEI increasing by 25% over the previous year. These were consequences of the economic (GDP) growth in most of these countries, with the accompanying liquidity and job growth. Even with the exit of Great Britain from the European Union, and the election of Trump as U.S. president, it looks like the world economy is heading for further growth. The reduction and tapering of liquidity injection by the monetary authorities of these countries will lead to higher interest rates, but their economies will continue to grow at the same rate as in 2017. The downside risks, such as oil at more than $70/barrel, slowdown of China's economy, and Russia's election, have a low probability of happening.
Like the BSP presentation which cited the 19 years of economic growth of the Philippines, Neri pointed out the seven years of more than 6 percent of GDP growth of the country, the 6.7 percent growth last year and the potential 7 percent growth this year and 2019, especially with the election in 2019. The economic momentum, increase in the investment component in the GDP, improvement in the budget process, and proposed infrastructure spending will continue the economic growth of the Philippines. The higher trade deficit, the higher inflation and the higher peso-dollar exchange rate are short-term effects of the growing economy.
Neri, forecasts a P53-$1 exchange rate by the end of 2018 and the PSE Index at 9,100. The growing economy will need a lot of foreign exchange for imports of capital goods and the $81 billion international reserves is only nine months of imports, so the pressure on the peso exchange rate. The higher inflation will also nudge the BSP to increase interest rates by 1 percent which will be passed on to the banks borrowers, together with the additional tax imposed on bank transactions with the passage of the "TRAIN" law. So, we can expect a higher interest on loans and maybe a slightly higher interest on deposits.
BPI is moving in the direction of providing more credit to the Small and Medium Scale Enterprises (SMSE) and broadening the reach of the bank to the underbanked and unbanked sectors of society with its own and BSP's initiatives to the rural areas to make inclusive growth less elusive, but this will take a lot of time and effort. Along this line, the growth of the Central Visayas economy as measured by the Gross Regional Product (GRP) in 2017 at 9 percent augurs well for growth outside Metro-Manila that will lead to inclusive growth.
In the open forum, a question on cryptocurrency was posed, asking for the banks view on it, Bitcoin in particular. The panel's position was that the intrinsic value cryptocurrencies is difficult or impossible to determine, and the lack of a regulator makes them volatile and speculative. They are still studying the utility of the "block chain" technology.
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