The Philippine economy will likely grow above 6 percent in the second half of the year on the back of strong demand and better export revenues.
In its latest Market Call report, First Metro Investment Corp. (FMIC)-University of Asia and the Pacific (UA&P) Capital Markets Research said growth in the July-to-December period will get a boost from high consumption spending and the low-inflation environment.
The research group also said despite the slowdown in manufacturing output, the country’s exports are expected to sustain the robust growth due to higher demand from the United States.
“All told, with the domestic demand picking up and exports doing better than expected at the back of solid gains in the US economy, output growth in H2 [second half] should easily beat the 6-percent GDP [gross domestic product] expansion posted in H1 [first half],” the FMIC-UA&P Capital Markets Research said.
Also, the group said inflation will remain within the Bangkok Sentral ng Pilipinas’s (BSP) target of 3 percent to 5 percent this year to around 3.8 percent. Inflation is also expected to be even lower by 2015.
The ample supply of rice due to the arrival of rice imports, the start of the delayed harvest season and the lifting of the truck ban have kept food prices stable.
The low-inflation environment, FMIC and UA&P Capital Markets Research said, may also prompt the Bangko Sentral ng Pilipinas (BSP) to pause monetary-tightening actions.
“With crude-oil prices falling on the back of strong supply and weak demand, we expect headline inflation rate to continue to fall to 3.8 percent by December and even substantially lower in 2015,” it said.
“The sharp downward trend of inflation and the normalization of money growth by November [to some 9 percent] provide much reason for the BSP to take a pause in its monetary-tightening cycle at least until after Q1 [first quarter] 2015,” it added.
Meanwhile, in terms of export growth, the FMIC and UA&P Capital Markets Research said the recent double-digit growths that began in June will continue until next year.
Export revenue growth reached 21.3 percent in June; 12.4 percent in July; and 10.5 percent in August.
In the January-to-August period, total merchandise exports grew 9.2 percent to increase to $40.748 billion in 2014, from $37.330 billion in the same period last year.
“Despite only the US economy showing solid gains, exports have been rising over 10 percent year on- year. We expect this trend to continue until the end of the year and beyond,” the group said.
However, what could drag the country’s growth in the second semester would be slow government spending.
Data showed that national government expenditures increased to P159.8 billion, higher by 9.5 percent than last year’s figure.
The group said, however, that even with a 9-percent increase in disbursements in September and 4 percent in August, these could not offset the 15-percent decline in disbursements in July.
“The fly in the ointment was the low budget deficit of P5.2 billion in September,” the group said. “But the national government seems to be more confident in accelerating its spending, while keeping corruption at a minimum.”
The group noted that the Department of Budget and Management has released a total of P52 billion to support government relief and rehabilitation efforts.