MANILA - Swiss investment bank UBS on Thursday said rising infrastructure investments under the Duterte administration's "Build, Build, Build" program may provide further lift to the country's growing economy.

Edward Teather, UBS senior economist for the Association of Southeast Asian Nations, said in a conference call that government's public investment would lift gross domestic product (GDP) growth to 6.8 percent in 2018 despite credit cycle excesses and possible rate hikes from the Bangko Sentral ng Pilipinas (BSP) due to policy tightening by the US Federal Reserve.

"The Philippines economy is likely to accelerate into 2018, off the back of rising public investment as the government executes its build, build, build program," Teather said.

"We project 6.8 percent year-on-year real GDP growth in 2018, which should slow slightly to 6.5 percent in 2019," he added.

The projected growth would be slower than the 7 to 8 percent target set by the Cabinet-level Development Budget Coordination Committee (DBCC).

Teather pointed out that the expansion should be supported by a wider fiscal deficit of three percent of GDP in 2018 from the projected 2.4 percent in 2017.

The economist said the ambitious tax reform program would raise fuel prices and expand the base for value added tax (VAT) while cutting personal income taxes.

Read: Congress ratifies tax reform bill http://news.abs-cbn.com/business/12/14/17/congress-ratifies-tax-reform-bill

He said the tax reform package should yield an administrative increase in inflation likely to 3.8 percent in 2018 before easing to 3.4 percent in 2019 as base effects from tax reform roll out.

He added that investment rates and working-age population growth implies potential real GDP growth in the Philippines likely between 6 and 6.5 percent.

"As such, we think a positive output gap is more likely. This lack of economic slack should also put upward pressure on inflation in 2018 as government policy pushes growth above potential," he said.

Teather added that overheating risks are now emerging due to strong credit growth.

"Some overheating pressures already appear apparent to us, as the Philippines appears at a different stage in the credit cycle to most of the region. Credit growth has not yet slowed down but appears to be yielding diminishing margin returns as real GDP growth and investment have slowed in 2017," he said.

The country's GDP growth accelerated to 6.9 percent in the third quarter from the revised 6.7 percent in the second quarter of the year, while inflation averaged 3.2 percent in the first nine months after easing to 3.3 percent in November from a three-year high of 3.5 percent in October.

The BSP has set an inflation target of 2 to 4 percent between 2017 and 2020.