Q2 GDP growth seen at 6.5-7%

The domestic economy likely grew by 6.5-7 percent in the second quarter, even beating the first-quarter level that made the Philippines the second-fastest growing economy in Asia after China.

This was the estimate of a joint First Metro Investment Corp.-University of Asia and the Pacific study, which said “the economic numbers being reported and the increasing number of foreign analysts seeing the country to continue its strong run despite the turmoil in the eurozone are confirming our bullish view on growth.”

The FMIC-UA&P research publication The Market Call said it was expecting full-year GDP growth at 6-7 percent or much higher than last year’s 3.7 percent. The government is expected to announce the second-quarter GDP numbers by the end of this month.

With agriculture likely to expand 2.5 percent in the second quarter from 1 percent in the previous quarter as well as a more rapid expansion in the manufacturing and construction sectors, the study said the second quarter could even exceed the 6.4-percent gross domestic product growth in the first quarter.

The research noted that Manila Electric Co.’s (Meralco) electricity sales, a proxy for economic activity, rose 8.3 percent year on year in June despite a fairly steep increase in electricity rates early in the month. Since January, it said Meralco sales have consistently grown above 8 percent, driven by robust demand of the industrial sector, which posted double-digit gains all throughout the first semester.

On average, it noted that the second-quarter electricity sales registered a 9.5-percent year-on-year expansion, slightly slower than the first quarter’s 9.9 percent but a big reversal from the 2.1-percent contraction in the second quarter of 2011.

“The strong growth was heavily due to the recuperating export sector, the boost in business process outsourcing (BPO) and manufacturing industries, as well as from the ongoing government infrastructure projects. The economic vitality reflected in this economic indicator is well supported by the one million new jobs created in the year ending April 2012,” the report said.

“Meralco sales as a proxy for GDP growth indicate better-than-expected [expansion] for the second quarter, indicating that the 6.4-percent GDP jump in first quarter was not a fluke. This is backed up by robust government spending, stronger export growth, stable OFW (overseas Filipino worker) remittance increases coupled with lower inflation in the second quarter,” it said.

For the second semester, while the external sector might be weaker due to the lingering euro zone recession, the research said domestic demand should be stronger since the national government would likely incur an additional P180-billion deficit for the semester, while a slight peso depreciation would spur OFW-dependent spending.

FMIC-UA&P’s outlook for the second semester said inflation would keep close to the lower end of the Bangko Sentral ng Pilipinas’ 3-5 percent target range and hover around 3.2 percent, much of it being due to base effects, because crude oil prices, as projected by the US Department of Energy, would be relatively steady and food prices would remain stable.

It said interest rates would have a slight downward bias and possibly pave the way for another 25-basis point BSP policy rate cut (to a new record low of 3.5 percent for the overnight borrowing) in order to align these to rates abroad and minimize currency speculation into the peso.

While the fiscal deficit would rise in the second half (which is deemed good insofar as it would stimulate the economy), tax revenue growth would keep a double-digit path as the stronger economy in itself would raise the buoyancy of tax collections. Government infrastructure spending has risen 66 percent in the first half but may only slow down slightly primarily because of a higher base in the second half of last year.

The study also noted that export growth might slow down to 4-6 percent in the second half as the euro zone recession stymies US and China expansion.