2nd-half economic growth seen at 6.5-7%

Economic growth likely accelerated in the third quarter of the year and would continue to do so in the remaining months as stronger global conditions lead to higher demand for the country’s exports.

Government spending for expensive infrastructure projects and reconstruction in areas affected by Supertyphoon Yolanda last year would also provide a boost, one of the country’s leading investment banks said in a report Monday.

Full-year growth, however, would likely fall short of the state’s target, given the slower-than-expected expansion in the first quarter of 2014.

“We expect a ratcheting up of national government spending as President Aquino has shown a rare displeasure over the spending slowdown and as the reconstruction work in Yolanda-afflicted areas goes into full swing,” First Metro Investments Corp. (FMIC) said.

In its monthly Market Call report, FMIC said that with the US economy humming, exports should continue to rise at a double-digit growth pace.

FMIC sees the Philippine economy growing by 6.5 to 7 percent in the second half of the year. In the first half, the Philippine economy grew by an average of 6 percent. FMIC said this would put full-year expansion at slightly below the lower end of the government’s 6.5 to 7.5 percent target.

Early economic signals in the third quarter, FMIC said, tended to show a mixed picture, although the balance was still tilted on the positive side.

Output indicators such as electricity sales saw double-digit gains, but the official industrial output indicator slowed to 8.1 percent from 13.6 percent in June. Manila Electric Co. (Meralco) sales may be more correlated to exports since its franchise area covers the Southern Luzon region.

The biggest hurdle to higher growth, FMIC said, was the government’s spending plan, which officials have had difficulty sticking to this year.

At the end of August, the national government’s budget deficit narrowed to P25.9 billion, down by 69 percent from comparable figures in 2013, indicating a slowdown in spending amid rising revenues.

“Clearly, this provides the national government more fiscal space in the provision of investment projects needed to promote economic growth,” the firm said.

However, FMIC said it doubted whether the government’s fiscal shortfall would come anywhere close to the ceiling set at the start of the year of P265 billion.