LOW inflation and the weakening peso are seen to have boosted consumption beginning October, according to First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) Capital Markets Research.
In its latest Market Call, FMIC and UA&P Capital Markets Research said inflation will fall below 4 percent in November and below, or at 3 percent in the first two months of 2015.
The peso, on the other hand, will continue to weaken against the dollar to around 45.161 by February 2015.
“Besides, inflation that is likely to fall below 4 percent by November and below 3 percent as early as the first quarter of 2015 should provide firepower to consumers with more purchasing power to spend more in the fourth quarter,” Market Call stated.
“The stronger US economy should boost capital flows into the US and keep the US dollar stronger against the euro, yen and other currencies. The peso will not be able to resist the strong tide,” it added.
FMIC and UA&P Capital Markets Research said inflation may average 3.4 percent in December 2014, as well as 2.9 percent and 3 percent in January and February 2015, respectively.
The peso, meanwhile, may average 44.85 to the dollar this month before sliding to around 45.189 to the greenback in January and 45.161 in February 2015.
Meanwhile, FMIC and UA&P Capital Markets Research revised its growth forecast for the Philippine economy this year to 6 percent.
This is consistent with the expectation of the National Economic and Development Authority that the Philippine economy’s growth will have difficulty meeting the lower end of the target for 2014 at 6.5 percent.
Socioeconomic Planning Secretary Arsenio M. Balisacan said it would be “very challenging” to meet even the 6.5 percent considering the economy needs to grow by over 8 percent to attain this growth rate.
“The Philippine economy’s slowdown to a 5.3 percent gross domestic product [GDP] in the third quarter, from 6.4 percent in second quarter took both government drumbeaters and analysts by surprise. It certainly presented a grim reminder to all and sundry that rapid economic growth is not a walk in the park, nor is it
inevitable, given favorable economic conditions. Underspending by the national government, poor agricultural performance and containers stuck in the Manila port due to a truck ban all combined to pull down the Philippine economy,” the Market Call stated.
“Falling crude oil prices and conditions that stifled the economy in the third quarter turning favorable, we still expect a strong fourth quarter. However, this may not be enough to bring the full-year growth even at the lower end of the government’s target,” it added.
The government failed to deliver on its promise to increase public spending at the start of the second semester, causing the economy to lose the much-needed momentum to meet the government’s growth targets this year.
Other factors, such as the contraction in the agriculture sector and financial intermediation, contributed to the slowdown of the Philippine economy to a growth rate of only 5.3 percent in the third quarter, the slowest since the third quarter of 2011, when the economy grew 3.2 percent.
Balisacan said the chilling effect created by the unfavorable decision of the Supreme Court on the
Disbursement Acceleration Program and the recent issuances of disallowance by the Commission on Audit were among the major factors that caused public spending to contract by 2.6 percent in the third quarter.