FMIC, UA&P: Growth may remain 'tepid' in Q3 amid inflation, weak exports
MANILA, Philippines — Economic growth in the third quarter may remain “tepid” unless inflation cools down and exports begin to rise, according to a report released in August, adding that the central bank may still hike policy rates to temper rising prices of key consumer items.
Economists at First Metro Investment Corp. and University of Asia and the Pacific said the Philippine economy may expand 6.5 percent or less in the July-September period, although underlying growth momentum should hold up amid robust construction and manufacturing activity.
“We expect faster growth in the second half anchored on speedier government disbursements and higher peso equivalent of the remittances,” they said.
“Robust capital investments and stronger infrastructure and capital outlay and better exports should, likewise, push further the expansion significantly better than growth in the first half,” they added.
The government plans to ramp up infrastructure spending to 7.3 percent of the country’s gross domestic product by the end of Duterte’s six-year term, and supercharge economic growth to 7-8 percent from this year up to 2022.
But in the second quarter of 2018, the Philippine economy sharply eased to 6 percent, its slowest pace in three years. In the first half of the year, the economy grew at 6.3 percent, below the government’s goal for 2018.
Some analysts expect economic growth to continue to decelerate over the second semester of the year as tighter monetary policy and higher inflation weigh on consumer spending, which accounts for about seven-tenths of the Philippine economy.
Inflation jumped to a nine-year high of 5.7 percent in July on the back of higher food and transport costs. The central bank has responded by raising its benchmark rates by a cumulative 100 basis points from May to August.
In the same report, analysts at First Metro and UA&P said they expect year-on-year inflation to hit a fresh peak of 5.9 percent in August before tapering off to 5.2 percent and 5 percent in September and October, respectively.
They also see the BSP firing off another 25 basis points rate hike in the second half of 2018 to keep inflationary expectations in check and make the peso-dollar rate more stable.
“Headline inflation will peak in August given the heavy rains and flooding during the month,” they said.
“The saving factor in the third quarter would be normalizing food prices, due to September rice harvests and larger imports and downward trending crude oil prices to well below $70/barrel,” they added. “Electricity rates should also go down as hydro-power plants go full blast during the rainy season.”
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