FMIC sees economy, inflation picking up

MANILA, Philippines - The Philippine economy is expected to grow faster in the second quarter to around 6.3 percent as exports and reconstruction spending in Super Typhoon Yolanda-stricken areas accelerate, First Metro Investment Corp. (FMIC) noted in its latest research report.

FMIC, the investment arm of the Metrobank Group, however, warned that as the economy picks up in the second quarter, inflation would likely remain higher, fuelled by rising rice prices due to the delayed decision to the import rice and crude oil prices remaining high due to the Middle East and Ukranian crises.

But FMIC said the inflation rate may reach its peak during the period.

 â€œHowever, we will likely see it peak at the same time, as rice and oil prices stabilize,” it said

Moreso, it said exports would further improve in the next quarter.

 â€œWith the solid economic data emanating from the US economy and the escape of the euro zone from a two-year recession, we expect exports to take a double-digit growth path all the way to third quarter,” it said.

“No surprises came from robust overseas Filipino workers’ (OFW) remittances in March, while the Q1 fiscal deficit stood at some five percent of GDP (gross domestic product) as the National Government stepped on the accelerator in terms of spending,” it noted.

Despite the slight deceleration in money growth (which kept above 30 percent in April), FMIC noted that the exchange rate appreciated in May, as the Bangko Sentral ng Pilipinas (BSP) showed its willingness to part with its dollar reserves or much less boosting them as it feared higher inflation more.

“Nonetheless, we should see a clearer outlook in June when the economy reverts to a normal mode,” it added.

It also noted that domestic liquidity grew 32.1 percent in April, slower than the revised 34.7 percent expansion in March.

 â€œBSP mopped up a total of P64 billion from the financial system resulting from the one-percentage point increase in the reserve requirement (RR) to 19 percent put into effect in April. Narrow money (M1) and M2, likewise, decelerated by 0.6 and 2.5 percentage points, respectively,” it said.

“During its meeting held on May 8, the Monetary Board decided to further increase RR by one-percentage point effective May 30. This recent adjustment (by two percentage points since the beginning of the year) is expected to bring down money growth to 10 to 15 percent in Q3 (taking into account the higher base recorded in Q3 2013), which should reflect growth in the real sector of the economy,” FMIC added.