The stellar performance of the manufacturing and construction sectors likely boosted Philippine economic growth to above 7 percent in the first quarter, according to a local think tank.
In its latest Market Call report, First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) Capital Markets Research said this would allow full-year GDP to grow by as much as 7.5 percent. This falls within the government’s growth target of 7 percent to 8 percent this year.
“The growth outlook for the Philippine economy in the first quarter and full-year 2018 remains rosy, as January data and other indicators appear to signal an acceleration,” FMIC and UA&P Capital Markets Research said.
“Investment spending, powered by elevated government infrastructure outlays and double-digit growth [25.2 percent], should carry on being the main driver of the Philippine economic growth,” it added.
FMIC and UA&P Capital Markets Research said positive contributions were made through higher national government spending for infrastructure, which expanded by 25.2 percent in January.
The think tank said the 24.8-percent hike in manufacturing, which was the highest in seven years, is another factor that allowed GDP to grow faster. The expansion of the manufacturing sector was attributed to gains in 16 out of 23 industry subgroupings, of which 11 posted double-digit growth.
This included printing, which grew 108.1 percent; food manufacturing, 32.6 percent; electrical machinery, 30.3 percent; beverages, 24.1 percent; and petroleum products, 23.4 percent, among others.
“We will continue to track changes in employment and other leading indicators to help discuss the expansion path of the manufacturing sector, but we still think that the industrial output would rise in double-digit fashion in 2018,” the think tank said.
Factors that could drag down economic growth, according to FMIC and UA&P Capital Markets Research, include higher inflation, slower export- earnings growth and the weak peso.
The increase in commodity prices, which breached the upper limit of the Bangko Sentral ng Pilipinas’s target of 4 percent in March, will likely force the Monetary Board to raise interest rates. The think tank expects the Monetary Board to raise policy rates by 25 basis points in the second half of the year.
Inflation is expected to breach the 4-percent high-end target of the central bank in April at 4.3 percent; May, 4.5 percent; and June, 4.6 percent.
“We think that the uptrend in inflation will continue in the short run, but will start to decelerate once the effect of the Tax Reform for Acceleration and Inclusion law has been fully felt by the third quarter,” the think tank said.
“We maintain our view that the Monetary Board will likely increase policy rates in the second half of the year given the continued expansion in money supply and the large uptick in the average level of prices,” it added.
The lackluster performance of the country’s exports and the weak peso are linked, since the peso is affected by the widening trade deficit due to lower exports.
Exports are expected to recover on the back of the improvements in the global economy. The European Union and Japan are expected to recover beginning in the second quarter.
However, the peso will continue to be weak at around P51.92 to the dollar in April; P52.12 to the dollar in May; and P52.50 in June.
“The peso shall remain under pressure because of huge trade deficits, the outflow of portfolio investments and the solid upswing of the United States economy,” the think tank said.
The projection of FMIC and UA&P Capital Markets Research is consistent with the pronouncement of Socioeconomic Planning Ernesto M. Pernia, who said that the manufacturing sector powered GDP in the first quarter. Pernia said first quarter GDP growth likely reached 7 percent.
National Economic and Development Authority Undersecretary for Planning and Policy Rosemarie G. Edillon told the BusinessMirror that the double-digit growth of the manufacturing sector boosted the country’s economic performance in the January-to-March period.
World Bank forecast
Pernia noted the country will perform better than China this year based on the World Bank’s estimate. The World Bank projected that GDP will accelerate to 6.7-percent this year, from 6.6 percent last year.
“The forecast of the World Bank is about 6.7 percent GDP growth rate this year, but we expect to do better than 6.7-percent,” Pernia told Central Luzon stakeholders during the recent Philippine Economic Briefing here.
Household consumption and government spending on infrastructure will be the key drivers of economic growth, he said.
“Exports, though still performing lower than imports, are going to be performing better in the coming years given that the global economic growth has been forecast to do better this year than last year. In fact, we have surpassed the 3.7-percent forecast of the International Monetary Fund with a 3.9- percent global economic growth rate that impacts directly on our exports,” he said.
Agriculture, Pernia added, is also expected to perform better this year than last year, he noted.