MANILA, Philippines—The first-quarter economic growth of 7.8 percent may be higher than expected, but this does not mean that the country’s easy monetary policy will soon come to an end, according to analysts.
New York-based think tank Global Source said in a report that the key to sustaining above-trend gross domestic product (GDP) growth was investments, and the first-quarter performance indicated that the record-high business optimism was translating into real economic activity.
“With continuing loose fiscal and monetary policies further aiding growth, and considering the May election month, we anticipate strong growth to continue through the second quarter. However, growing concerns about overheating risks, particularly in the real estate sector, may impact growth prospects further down the road. [But] there are no signs yet of monetary authorities’ trying to rein in current bullish sentiments,” economists Romeo Bernardo and Marie-Christine Tang said in their report.
Global Source tentatively raised its GDP forecast for this year to 6.5 percent from 6.1 percent, with the outlook favoring an even higher upward adjustment.
British banking giant HSBC said the Philippines exceeded GDP growth projections on the back of a stronger-than-expected contribution from inventory changes and government spending.
“However, all of the Philippines’ typical key growth drivers decelerated or contracted. As such, [the Bangko Sentral ng Pilipinas] will like cut the SDA (special deposit account) rate further when it meets on 13 June,” HSBC economist Trinh Nguyen said in a report Friday. “Benign inflationary pressures will give [the BSP] plenty of policy room to cut [the SDA rate].”
SDA allows the BSP to borrow from a broader market in order to mop up excess liquidity in the financial system.
Also, Standard Chartered Bank said the first quarter result confirmed its bullish view on the Philippine economy brought on by the assignment of an investment grade.
“At present, inflation is a secondary concern. We believe that investment growth is likely to accelerate on the back of sustained corporate optimism and the [implementation] of more public-private partnership infrastructure projects,” said Jeff Ng of Standard Chartered.
In a research paper, Ng said investment growth in the first quarter was driven by a spike in construction, while growth in durable equipment production had also been strong.
But Ng noted that services exports had performed below expectations, declining by 2.1 percent year-on-year in the first quarter.
“We believe this was due to the high base effect, and still look for growth in services exports for the remainder of the year. We also expect net exports to improve gradually, in line with global economic growth, over the course of the year. For now, sustained remittance inflows should ease concerns about a contraction in the current account surplus,” Ng said.
HSBC’s Nguyen said that the Philippines is a resilient economy, backed by hard-working Filipinos abroad who continue to send home money to boost private consumption.
“But it is no superman,” she said, referring to the overseas workers. She also said that the country is “not immune to the gravitational drag of a slowing China and sluggish euro zone growth.”