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FMIC tempers forecast for PH growth in 2014

/ 05:21 AM December 25, 2014

Investment house First Metro Investment Corp. has tempered its growth forecast for the Philippines for the full 2014 to 6 percent following the disappointing pace of expansion in the third quarter.

In its mid-year outlook in July, FMIC said it expected the country to expand at a pace of 6.6 to 7.5 percent this year.

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“While our optimism has waned slightly, we do expect a rebound in the fourth quarter,” FMIC said in the December issue of “The Market Call,” a joint publication with the University of Asia and the Pacific.

The FMIC-UA&P research said the lifting of truck ban in the city of Manila, the government’s likely ability to spend and the late rice harvests should push output at a quicker pace this fourth quarter than in the third quarter.

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The Philippine economy grew by only 5.3 percent in the third quarter compared to the consensus forecast of 6.4 percent, taking the market 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,” the research said.

The research said underspending by the national government, poor agricultural performance and containers stuck in the Manila port due to a truck ban all conspired to pull down the Philippine economy.

“Nevertheless, we maintain our optimism that the Philippines’ growth will pick up in the last quarter, underpinned by the robust private sector’s performance and assuming that national government will accelerate its disbursement to support infrastructure development and rehabilitation projects,” it said.

The research added that export prospects looked brighter as the US economy was showing more robust numbers from the latest economic indicators like jobs creation, housing starts and retail sales.

At the same time, FMIC said the stronger US economy should boost capital flows into the United States 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 said.

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On the positive side, the research noted that inflation was falling, which meant that the inflation-targeting Bangko Sentral ng Pilipinas would likely keep its interest rates steady beyond the first quarter of 2015.

The research said inflation was likely to fall below 3 percent as early as the first quarter of 2015, adding this should “provide firepower to consumers with more purchasing power to spend more in the fourth quarter.”

“With money growth ending at below 10 percent growth by December, and inflation on a sharp downward trek, the Monetary Board will likely keep policy and SDA (special deposit account) rates at present levels and beyond first quarter 2015,” it said.

The BSP’s overnight borrowing rate is currently at 4 percent and overnight lending rate at 6 percent. The rate on SDA, the mechanism by which the BSP borrows from the broader market, is 2.5 percent.

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TAGS: `the market call’, First Metro Investment Corp., FMIC-UA&P research, Investment, Philippine economy, truck ban, University of Asia and the Pacific
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