The economy may expand this second quarter at a slightly faster pace than the 4.9 percent growth posted in the first quarter, given the expected export recovery, higher investments and increase in state spending, according to the joint research of First Metro Investment Corp. and University of Asia and the Pacific.
According to the May 2011 issue of the joint research publication “The Market Call,” the economic slowdown in the first three months of the year could be due partly to the significant underspending by the government.
The research said this meant “the private sector’s growth was better than 4.9 percent, indicating that it remained in a healthy condition for further expansion.”
As such, FMIC-UA&P said the second quarter might be a “little better” than the first quarter in terms of gross domestic product growth.
The GDP growth rate of 4.9 percent in the first quarter was a full percentage point lower than FMIC-UA&P’s below 6 percent projection, which the tandem attributed to the extraordinarily weak record of the services sector.
“This weaker expansion will continue for the rest of the first half of 2011. However, it is expected to recover in second half because of higher government spending for infrastructure facilities,” the research said.
FMIC-UA&P also projected that inflation was likely to remain within the 4.5-4.7 percent range in the second quarter due to stable rice and other food prices and the decline in crude oil prices. As such, the research said monetary policy was unlikely to change given FMIC-UA&P’s view that the headline inflation rate would not accelerate substantially in the second quarter.
The Bangko Sentral ng Pilipinas has so far raised its key interest rates twice for a total of 50 basis points to 4.5 percent this year.
On the fiscal side, FMIC-UA&P noted that robust revenue gains and weaker spending combined gave the government a surplus of P26.3 billion in April, bringing about a cumulative surplus of P61 million in the first four months.
The surplus is a reversal of the deficit of P131.8 billion last year. Because of this, the research said it was highly unlikely for the government to exceed its budget deficit ceiling of P152.1 billion in the first semester.
“The current surplus makes it highly probable for the deficit in 2011 not to exceed P250 billion (or way below the deficit ceiling of P290 billion). It also leaves a lot of room for the government to spend more for infrastructure and safety nets for the poor in the coming months,” the research said.