DESPITE the government’s efforts to maintain the low-inflation environment in the country, the crisis in the Middle East and North Africa (Mena) may negatively affect economic growth by pushing up prices in the second and third quarters.
In its latest edition of Market Call, the First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) Capital Markets Research Center said the Mena situation could increase inflation to around 4 percent in the second quarter and even higher in the third quarter.
However, the center said other sectors will be able to help boost consumption. One effect of the crisis, weakening the peso against the dollar, would give the families of overseas Filipino workers (OFWs) more peso value for every dollar they receive, it said by way of example.
Nonetheless, the weakening of the peso is expected to be short-lived. The center expects that by March, the peso will again start inching up as the Bangko Sentral ng Pilipinas (BSP) tries to offset higher crude-oil and food prices with a strong peso.
“Coupled with significantly higher wheat, corn and soybean prices in the international markets, the Mena crisis has raised inflationary expectations, which are likely to play out more in the second quarter of 2011. Consumer spending is likely to be a bit weaker compared to the previous quarter, while the corporate sector appears to remain strong with robust profits, double-digit exports growth, and sustained residential construction providing the support,” the center said.
“Inflation is expected to average 3.8 percent in the first quarter of 2011, from 2.9 percent in the previous quarter. However, the delayed impact of higher crude-oil prices would likely start in the second quarter, when we project an acceleration of the inflation rate to a 4-percent pace, and even higher still by the third quarter,” it added.
While it is true that 70 percent of the country’s economic growth is consumption-based, the center does not expect the Mena crisis to negatively affect the economy until the second quarter of the year.
However, it could not yet provide an exact figure on the expected growth since there was still not enough data available to generate a specific growth rate.
Nonetheless, some growth is still expected in the first three months of the year as seen in recent business-confidence surveys, strong results from informal retail sales surveys, growth in imports and exports, and increase in government spending.
“Sharply higher oil and food prices abroad as a result of the widening Mena political crisis and weak harvest are conspiring to put some dark clouds over the outlook for the Philippine economy,” the center said. “A sharper easing would be in store for the second quarter of 2011 as higher prices bite on consumers’ purchasing power.”
For his part, Dr. Cayetano Paderanga Jr., National Economic and Development Authority (Neda) director general and Socioeconomic Planning secretary, said the President’s economic managers are closely monitoring the situation.
Paderanga said it cannot yet be determined how much the Mena crisis is going to affect prices and overall economic growth, for that matter, since it is still uncertain as to how long the crisis would last.
To date, the government is not thinking of changing its 3.5-percent to 5.5-percent inflation outlook for 2011. Paderanga said if the estimate of the center is around 4 percent in the second quarter and higher in the third quarter, this is still within the expectations of the government. In February 2011 inflation already rose to 4.3 percent, from 3.6 percent in January, on the back of higher food prices as well as housing and repairs and service prices.
Inflation in February 2010 was 4.2 percent.
The National Statistics Office reported that food prices alone increased to 4.3 percent in February, from 3.1 percent in January. This was largely due to the 12.2-percent increase in the prices of fruits and vegetables.
“We’re always watching closely because inflation is a key factor for Philippine households. The biggest thing that we don’t realize are disruptions in supply because it leads to unusual behavior, but we have not seen that yet,” Paderanga told reporters.
Earlier, state-owned think tank Philippine Institute for Development Studies (PIDS) disclosed that the economy will only post a growth of around 5.9 percent in 2011.
In a briefing, PIDS president Dr. Josef Yap said the think tank opted to keep a moderate stance when it came to forecasting growth. The growth forecast, Yap said, already took into consideration volatile oil prices, without which the economy can post a growth of 6.5 percent this year.
The PIDS also expect inflation to be slightly higher at 4 percent, from the 3.8 percent posted last year. The higher inflation rate for this year is expected to be an offshoot of the increase in oil prices which is being driven by extreme weather, as well as speculation created by the Mena crisis.
