MANILA, Philippines - Philippine economic growth is expected to recover in the second quarter after a disappointing first quarter performance but rising inflation pressures are expected to prompt the Bangko Sentral ng PIlipinas to raise policy rates in the third quarter this year, UK-based Barclays said in a report.
“We expect growth to bounce back from second quarter onwards, as there are very few signs that the domestic economy is slowing,” the bank said in its Emerging Markets Quarterly report.
“Consumer confidence is high, automobile sales are elevated and unemployment has been rangebound,” Barclays said.
The bank said private consumption and investment remain strong. “Merchandise exports have also continued to rise, while the service sector expansion remains strong,” the bank said.
The Philippine economy grew 5.7 percent in the first quarter, the weakest performance in nine quarters, the bank said. The government attributed the disappointing growth to the devastation brought about by Typhoon Yolanda.
“While first quarter GDP (gross domestic product) growth was unexpectedly weak, we expect it to improve and move back above 6.5 percent in the remaining quarters of 2014,” Barclays said.
Barclays expects the Philippine economy to grow by 6.5 percent this year and the next from the 7.2-percent expansion recorded in 2013.
This figure was at the low end of the government’s 6.5- to 7.5-percent goal for this year, and also below the 2015 target of seven to eight percent.
But Barclays cautioned that inflationary pressures have also been on the rise along with the strong domestic demand.
“Food price inflation has been the key driver of inflation... The recent pickup in food prices has been broad based, and partly due to adverse weather conditions and rising processed food prices,” the bank said.
“A stronger peso has had little impact in terms of curbing price pressures, so far. Core inflation continues to inch higher, with higher costs for housing, water supplies, and transportation adding to the upward pressure,” Barclays said.
The bank expects inflation to average 4.1 percent this year and to settle at 3.8 percent in 2015. This is still within the BSP’s three to five percent target for this year and the two to four percent range for 2015.
“The BSP has lowered its target inflation range to two to four percent in 2015, which creates some concerns about the upper bound of the range being breached next year,” Barclays said.