THE second quarter is expected to reflect continued recovery momentum on the back of higher employment and domestic demand, First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said.

In their market call report on Wednesday, FMIC and UA&P said the growth will continue despite the constraints on government resources and the impact of inflation. However, growth is expected  to slow compared with the first quarter.

According to the report, the 8.3% gross domestic product (GDP) growth seen in the first quarter was largely due to the 3.4 million jobs created between the fourth quarter of 2021 and the first quarter of 2022, which is also expected to flow onto the second-quarter growth result.

“As the best performer in ASEAN and East Asia, the Philippine economy’s impressive 8.3% Q1 GDP growth has brought the economy to pre-pandemic levels (Q1 of both 2019 and 2021) and has likely kindled greater optimism among firms,” it added.

“To be sure, a good part of the gains may be attributed to pre-election spending, but it will likely spill over into (the second quarter), since the present administration still has much cash to spare,” the report said.

However, FMIC and UA&P said the government’s limited fiscal space is expected to start reflecting in the results for the second half.

Whether or not growth will continue into the second half “will likely hinge on the quality of technocrats that the new President will bring into his economic team,” the report said.

The report said industries like mining, manufacturing, and construction are expected to post gains and lead growth for the second half.

FMIC and UA&P forecast inflation to average 5% for the remainder of the year, naming it the most significant headwind to growth. This is expected to hold true unless the Ukraine-Russia war comes to a swift conclusion and crude oil prices drop significantly.

“The war remains unpredictable, but the second-round effects of unusually elevated crude oil prices have affected other commodities,” the report said.

Crude oil prices stayed above $100 a barrel, including benchmarks West Texas Intermediate and Brent, which averaged $101.78 and $104.58 a barrel respectively in April.

The Philippine Statistics Authority will release May inflation data on June 7.

The report also warned that early tightening by the Bangko Sentral ng Pilipinas (BSP) will result in “too tight” of a monetary situation.

The BSP said it is likely to raise key interest rates by another 25 basis points at its next policy review this month.

“We are probably inclined to have another 25-basis-point adjustment on our next Monetary Board meeting which is on June 23,” BSP Governor Benjamin E. Diokno said. — Tobias Jared Tomas