Philippine economy seen to grow by 7.1% in Q1

MANILA, Philippines — The Philippine economy may grow by 7.1 percent in the first quarter, supported by the manufacturing sector, expectations of higher infrastructure spending and easing inflation, according to First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) Capital Markets Research.

In the Market Call report released yesterday, the two institutions said they expect a 7.1 percent gross domestic product (GDP) growth in the first quarter, with latest data on manufacturing, employment and national government spending showing positive signals.

“While the data do not readily show blinking bright lights, digging a bit beneath the surface does provide sufficient basis for good expansion in Q1 (first quarter) 2023,” FMIC and UA&P said.

In terms of manufacturing, the two institutions said the S&P Global Market Intelligence Purchasing Managers’ Index for the country’s manufacturing sector showed continued expansion, although at a slower pace of 52.7 in February this year from 53.5 in January.

While employment eased as usual in January this year from December 2022 with the end of the Christmas season, the two institutions said the employment picture is expected to have improved in February.

The two institutions said the likely comeback of infrastructure spending also supports their positive outlook on the economy.

“With NG (national government) deficit lower in 2022 from the prior year, debt-to-GDP ratio mildly rose to 60.9 percent from 60.5 percent earlier, suggesting available fiscal space, albeit not quite like those in pre-pandemic times. Thus, we expect NG infrastructure spending, together with major ongoing PPP (public-private partnership) projects, to bulk up in 2023,” FMIC and UA&P said.

While inflation remains a concern, the two institutions believe it may have hit its peak in January and its downtrend should ease concerns of a slowdown in consumer spending.

“Domestic inflation likely has peaked (in January) and the downswing should ensue, albeit not as fast as policy makers would like since it will likely remain above eight percent in Q1 and above seven percent in Q2,” the two institutions said.

Headline inflation eased slightly to 8.6 percent in February from its 14-year high of 8.7 percent in January this year due to slower upticks in transport and food prices.

With inflation likely to have peaked in January and price gains in the coming months to be much less than last year’s, FMIC and UA&P said the Bangko Sentral ng Pilipinas (BSP) may opt for only a 25-basis-point (bp) rate hike at its meeting on Thursday.

“We expect the BSP to hike policy rates by 25 bps in its March meeting to 6.25 percent, but this won’t suffice to stem the depreciation tendency of the peso given the Fed’s resolve to raise its policy rates by 25 bps in March and in May and the Philippines’ burgeoning trade deficits. The recent Silicon Valley Bank failure in the US won’t derail those plans,” FMIC and UA&P said.

The two institutions also said consumer spending and economic growth in the first quarter are expected to be supported by the personal income tax cuts and strong overseas Filipino worker remittances.