LOCAL think tank First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) Capital Markets Research Center expects the economy to post a higher growth than the first quarter on the back of the government’s “catch up” spending, a recovery in the country’s merchandise exports and steady rise in investments.
UA&P senior economist Victor Abola said the country’s gross domestic product (GDP) will likely expand by around 5.2 percent to 5.3 percent in the second quarter. This is slightly higher than the 4.9 percent posted by the economy in the January-to-March period.
Abola, who provides the economic assumptions and analysis to the center’s Market Call publication, expects that base effects due to the high growth last year is the reason the economy will not post a growth of around 6 percent in the first half.
However, he said a growth of around 6 percent or higher is likely for the third and fourth quarters. Unfortunately, this is still below the original growth projection of the government of around 7 percent to 8 percent this year.
“While the slowdown was evident, part of the reason was that the national government underspent significantly in the first quarter, which means that the private sector’s growth was better than 4.9 percent, indicating that it remains in a healthy condition for further expansion,” the center said.
“GDP growth in the second quarter may be a little better than the first quarter, as we expect exports growth to recover, investments to continue rise, and the government to spend more than it did in the first quarter,” it added.
The center explained that while the actual first-quarter export growth was lower than its estimate of 9 percent, exports will likely benefit from higher exports to Japan. It added that the month-on-month trend in exports was upward, and this is a good sign that a recovery will take place.
It explained that weaker export of electronic products was the reason for the 4-percent export growth in March from around 8.2 percent in February. However, the actual level of total exports in March was higher compared with February at $4.4 billion from $3.9 billion.
This also caused an improvement in the month-on-month growth rate to 12.6 percent from a contraction of 3.4 percent. The average annual growth rate of exports in the first quarter fell to 8 percent from the fourth quarter 2010’s 21.8 percent.
Further, the center believes that with the current surplus in the government’s spending program, this will give the government more room to spend on infrastructure and safety nets for the poor in the coming months.
However, it said this increase in spending for infrastructure and safety nets will not cause the government to exceed its planned P250-billion-worth deficit for the year. This will also cause a three-to four-percentage-point reduction in the country’s debt-to-GDP ratio by year-end.
“The main reason for the reduced spending was lower interest payments, which plunged by 27 percent from a year ago. That was good news [but] not so favorable in terms of economic stimulus was the 5.2-percent decline in noninterest expenditures,” the center said.
“Moreover, the previous year was an election year and the presence of El Niño prompted the government to allot monetary support for the farmers,” it added.
Another factor that will help keep growth up in the second quarter is low inflation. The center said inflation will likely be within the 4.5-percent to-4.7 percent range on the back of stable rice and food prices, as well as reduced crude-oil prices.
The center explained that stable rice and food prices are due to the assurance from the Department of Agriculture (DA) that rice stocks remain at double-digit growth rate of 11.1 percent. The DA also said rainfall is expected to increase, which gives a positive outlook for palay and corn in the coming months.
In terms of oil prices, the center said crude-oil prices, using West Texas Intermediate prices, dropped by 10 percent to just below $100 per barrel in the first week of May. This level has stayed throughout the month due to weaker demand.
“Because of the forgoing factors, we maintain our below 5-percent average in the second quarter of 2011, even with the higher rice inflation rate of 1.3 percent from 1 percent,” the center said.
The national government’s underspending in the first quarter combined with the effects of the turmoil in the Middle East and North Africa, as well as the earthquake and tsunami in Japan, caused the Philippine economy to post a slower 4.9 percent in the January-to-March period.
The National Statistical Coordination Board said even if the growth in the fourth quarter was rebased to constant 2000 prices, this was significantly slower than the rebased growth in the first quarter of 2010, which was estimated at 8.4 percent.
