‘EXPANSION may remain tepid… unless inflation starts to slow down and exports begin to move to positive territory.’ — The Market Call

ECONOMIC GROWTH can be expected to pick up this semester, though it may be nowhere near the 7.7% needed for gross domestic product (GDP) to hit the lower end of the government’s 7-8% full-year target, according to the latest joint assessment of First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P).
Softer inflation expected towards the end of 2018 — in the wake of recent consecutive policy tightening by the Bangko Sentral ng Pilipinas (BSP) — could help support GDP expansion, they added.
FMIC and UA&P said they expect growth to recover after the “underwhelming” six percent expansion clocked in April-June, marking the slowest pace in three years.
The Philippine Statistics Authority attributed the deceleration to a slowdown in consumer spending, as well as a contraction in exports and flat farm output.
On the flipside, investments surged by 20.7% in the second quarter.
The 6.6% and six percent recorded in the first and second quarters, respectively, fueled last semester’s 6.3% that compared to a year-ago 6.6%.
Economic managers have noted that GDP now needs to expand by at least 7.7% to hit the government’s full-year target, compared to the 6.8% recorded in the second half of 2017.
“We expect faster growth in H2 anchored on speedier national government disbursements and higher peso equivalent of the remittances,” according to the latest issue of The Market Call.
“Robust capital investments and stronger infrastructure and capital outlay and better exports should, likewise, push further the expansion significantly better than growth in H1,” it read.
“We still think that export growth will turn positive in H2 as there is some six months lag between the peso depreciation and improvement in exports,” the analysts added, noting that outbound shipments of goods have declined so far this year.
While a table in The Market Call still indicated a 7-7.5% full-year GDP growth projection, the analysts acknowledged in the text that expansion could not be as robust as initially expected, saying: “Nonetheless, Q3 GDP expansion may remain tepid (i.e., 6.5% or less), unless inflation starts to slow down and exports begin to move to positive territory.”
The analysts added, however, that “[w]ith construction (especially infrastructure) and manufacturing remaining robust, the underlying growth momentum should hold up.”
The Market Call sees inflation peaking in August, but said food prices should eventually normalize and help ease overall price pressures.
Inflation should also ease partly due to the aggressive 100-basis point cumulative policy interest rate hike which the Bangko Sentral ng Pilipinas adopted in three successive meetings of its Monetary Board on May 10, June 20 and Aug. 9.
BSP Governor Nestor A. Espenilla, Jr. said monetary authorities were keeping the door open for further tightening if needed, should inflation maintain its ascent well beyond the 2-4% target band for 2018.
Inflation hit a multiyear high of 5.7% in July, which pulled the year-to-date pace to 4.5%. July marked the seventh consecutive month that inflation picked up and the fifth straight month the pace pierced the full-year target range.
FMIC and UA&P jointly see inflation hitting 5.9% in August before settling down to 5.2% in September and five percent come October. — Melissa Luz T. Lopez