SLOWING inflation and increased government spending in the second semester could boost the economy’s chances of posting a full-year growth of above 6 percent this year, according to a local think tank.
Based on its latest Market Call report, First Metro Investment Corporation-University of Asia and the Pacific (FMIC-UA&P) Capital Market Research said the economy is on track to post a 6.1-percent full-year growth despite second-quarter GDP reaching 5.6 percent.
Spending from the national government would pave the way for a rebound in the second semester of this year. Slowing inflation would encourage more household consumption which would also boost GDP growth.
“The second semester should show a good rebound due to an acceleration in NG [national government] infrastructure spending and employment, cut in personal income tax, and milder inflation that should, on year-on-year [YoY] basis, hit BSP’s [Bangko Sentral ng Pilipinas] 2-4 percent target by the fourth quarter. These translate to more robust investment and consumer spending,” the think tank said.
FMIC-UA&P Capital Market Research said the decline in Meralco power rates in July as well as slowdown in food prices could offset any increase in rice prices. “[This is] even if the latter should occur, it should prove transitory as history has shown.”
This would complement the infrastructure spending expected from the government in the second semester. The local think tank said public infrastructure spending will create more jobs.
With more jobs, there will be an addition to the personal income tax cut and provide more household income and thus higher consumer spending.
Meanwhile, given the recent slowdown in inflation, the BSP may pause in its next policy meeting. However, the US dollar may depreciate the peso to $56 to the dollar by year end.
“With inflation rates clearly headed to its target range, we think BSP will pause in its next meeting in August, despite the widely expected Fed policy rate hike of 25 bps on July 25th,” the think tank said.
“However, the BSP stance, together with elevated trade deficits and an upside on the US dollar will likely push the exchange rate back to above P56/$ by yearend,” it added.
Second quarter
Moody’s Analytics said the economy’s GDP growth could average 6 percent in the April to June period in 2023.
In its economic brief, Moody’s Analytics said the slower inflation and improvement in the labor market should boost household spending in the second quarter of 2023.
The GDP growth rate expected by Moody’s is the same rate that the National Economic and Development Authority (Neda) hopes for in order to meet its full-year targets.
Socioeconomic Planning Secretary Arsenio M. Balisacan said the economy needs to post an average growth of 5.9 percent in the next three quarters to attain the low-end of the government’s growth target this year.
For the second quarter, Balisacan said, the economy could post a growth of 6 percent, barring any external shocks. This expectation is in line with the government’s full-year targets.
The primary growth driver for the second quarter, Balisacan said, would be consumer spending. However, the main drag on growth could be exports because of the challenging global environment.
Image credits: Nonie Reyes and Roy Domingo
