Philippines: Economic rebound on track despite slight easing in Q2

MANILA, Philippines — The country’s economic recovery remains on track despite an expected slight easing in the second quarter as higher employment and infrastructure spending are likely to provide a boost in the second half, a joint report by First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said.

In the Market Call report released yesterday, FMIC and UA&P said while gross domestic product (GDP) growth is likely going to slow down slightly in the second quarter, recently released economic data point to sustained economic recovery.

“Given the positive data and improved consumer sentiment, the economy will continue to recover rapidly, albeit at a slightly milder pace,” the report said, adding that the economy is still seen to grow by six to seven percent for the year.

The government has set a 6.5 to 7.5 percent GDP growth target for this year.

Last year, the economy grew by 5.7 percent. In the first quarter this year, GDP grew by 8.3 percent. Data on second quarter GDP growth will be released by the government next week.

According to FMIC and UA&P, the country’s labor market remained robust in May, even with the end of election spending in the early part of the month, as 453,000 jobs were added to the economy primarily in the services and industry sectors.

While the purchasing managers’ index slowed down in July to 50.8 from 53.8 in June, it remained on expansion and manufacturing firms increased the workforce.

FMIC and UA&P said additional jobs are expected to support stronger consumer sentiment both in the second quarter and in the second semester.

The economy is also expected to benefit from infrastructure spending in the second half.

“We expect infrastructure spending to accelerate in H2 (second half) as the NG (national government) fiscal space has expanded with better tax revenues,” FMIC and UA&P said.

In addition, the peso depreciation is seen to boost the income of some Filipinos.

“The positive income impact of peso depreciation on overseas Filipino workers remittances, business processing outsourcing revenues, and exports (i.e., affecting some 70 million people) should offset much of the weakness in consumer spending hit by high inflation,” the report said.

While FMIC and UA&P expect inflation to remain close to six percent in the third quarter, they said this should trend downward as crude oil prices have softened amid the global economic slowdown.

FMIC and UA&P forecast annual inflation to be at 5 to 5.2 percent this year.

The country’s inflation rate climbed to 6.1 percent in June from 5.4 percent in May, bringing the average in the first semester to 4.4 percent, above the Bangko Sentral ng Pilipinas’ target range of two to four percent.
“BSP can wait until August meeting before making another policy rate hike to make sure the economic rebound remains intact,” the report said.