Faster 5.6% Philippine GDP growth seen in Q2

Benign inflation perked up consumption in the second quarter, allowing economic output to grow by 5.6 percent. Photo by Ted ALJIBE / AFP

MANILA, Philippines — The Philippine economy may have grown by a faster 5.6 percent in the second quarter, with benign inflation powering up consumption.

Such an outlook bodes well for the country’s capital markets.

In their latest “The Market Call” report, economists at University of Asia and the Pacific (UA&P) said gross domestic product (GDP) is projected to expand by 5.6 percent in the three months through June.

READ: Slower than expected: Philippine GDP grows by 5.4% in Q1

If realized, growth would be faster than the 5.4 percent recorded in the first quarter. But it would still miss the 6 to 8 percent target range of the Marcos administration.

UA&P said economic conditions were “slightly more positive” compared to the preceding quarter.

And it is all because of tame inflation, which supported consumption at a time when concerns over income and job availability were weighing on consumer sentiment.

Government spending should also pick up after May, as the election-related ban on state expenditures ended, UA&P added.

Overall, the economists said the more solid demand conditions at home would drive GDP growth despite the external headwinds.

“National government spending should accelerate starting May. The external sector shows signs of modest improvement and should not pull down domestic demand expansion,” UA&P said.

Peso depreciation

Moving forward, UA&P said the peso could depreciate in the third quarter amid the ongoing Israel-Iran conflict.

The local currency is likewise expected to come under pressure from the ongoing easing cycle of the Bangko Sentral ng Pilipinas (BSP), which is happening while the US Federal Reserve is staying on hold.

The diverging easing path of the BSP and the Fed helped the Philippines’ bond market “decouple” from America, the economists said. And with another quarter-point cut to the local policy rate seen happening later this year, UA&P said investors returned to both primary and secondary markets.

But UA&P is not as bullish on the local stock market, expecting the Philippine Stock Exchange index (PSEi) to have ended the second quarter “with a slight downside bias.” Nonetheless, the rate-cutting cycle of the BSP could perk up PSEi in the third quarter.

“Headwinds from the Middle East conflict on fire and the impact of the Fed pause in policy rate changes on June 18 would lessen investor appetite,” UA&P said.

“However, in the third quarter when we expect another 25 bps (basis points) policy rate cut by BSP, a more sustainable rally should pervade,” it added.

“A total 50 bps reduction will add new life to construction projects, reduce government expenditures, and enliven investor cravings.”