FMIC, UA&P upbeat on Philippines’ 2nd quarter growth

MANILA, Philippines — Elevated employment levels and higher state spending could make the Philippine economy grow at a faster rate of 5.9 percent in the second quarter. If realized, this will however still fall short of the government’s 6 to 7 percent target.

That was according to the latest “The Market Call” report of First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P), which see a “mild acceleration” in gross domestic product (GDP) growth after a “disappointing” expansion in the first quarter.

Fueling FMIC and UA&P’s more upbeat outlook was their expectation of a recovery in domestic demand amid better labor market conditions, stronger state expenditures, and within-target inflation that may trigger an early rate cut by the Bangko Sentral ng Pilipinas (BSP).

READ: ADB tempers 2024 Philippine growth forecast to 6%

“For the rest of the year, elevated employment levels, expected ramping up of government spending, and inflation maxing out at slightly below 4 percent up to July… and a likely policy rate cut of 25 basis points (bps) by BSP in Q3 should put domestic demand back into the fast lane,” the report said.

Government data showed growth of household spending eased to 4.6 percent in the first quarter—the weakest reading since the 4.8 percent contraction at the height of the COVID-19 pandemic in the first quarter of 2021.

That, in turn, held back the first quarter GDP growth to 5.7 percent, slower than the Marcos administration’s 6 to 7 percent target range.

Secretary Arsenio Balisacan of the National Economic and Development Authority had attributed the slower-than-expected growth in the first three months of 2024 to persistently high consumer prices and the slew of anti-inflation interest rate hikes that crimped both household and state spending.

No repeat

While their second-quarter GDP growth projection was still below the state’s target, analysts at FMIC and UA&P said the pace “will likely hasten in H2 to bring full-year GDP growth to 6 percent with a slight upside bias.”

“Moving forward, we don’t see a repeat of Q1 downbeat,” they said.

Meanwhile, Philippine financial regulators identified volatile global energy prices as a major threat to the economy as they can stoke inflation, which may delay monetary policy easing at a time when liquidity conditions at home are already tighter than necessary.

READ: PH seen growing faster in 2024, but will not hit gov’t target

The Financial Stability Coordination Council (FSCC) said in a statement that “the volatility in the price and supply of energy-related products can affect economic activity, while a high-for-long global interest rate situation will weigh on debt servicing in general.”

The FSCC is an interagency council chaired by the BSP Governor Eli Remolona Jr.

“These are issues that the FSCC will closely monitor and may address in due course if warranted,” Remolana said.