THE recovery in gov-ernment spending and the lower inflation are among the key factors that will boost the country’s economic growth in the second half of the year.
In its latest Market Call report, the First Metro Investment Corp. (FMIC)-University of Asia and the Pacific (UA&P) Capital Markets Research group added that the lifting of the truck ban in Manila will also help sustain the country’s export growth.
“It would appear that the remaining stumbling blocks for an even stronger rebound in H2 [second half] are the relatively high inflation rate and the NG [national government] underspending. We, however, see these two main concerns addressed in H2,” FMIC-UA&P Capital Markets Research said.
“Stronger global manufacturing activity and the relaxation of the Manila truck ban should help sustain export growth,” it added.
The group explained that while revenue gains remained robust, expenditures fell in July as government line agencies implemented tighter screening processes for their spending.
The measures were implemented in the wake of the Supreme Court’s declaration of unconstitutionality in some parts of the Development Acceleration Program (DAP).
“NG spending should see a clear upward trend in H2 as the President has already asked Congress [controlled by his party] for a supplementary budget that would offset the cutting off of DAP funds,” the FMIC-UA&P Capital Market Research said.
The increase in prices, on the other hand, is expected to slowdown. The FMIC-UA&P Capital Market Research said inflation may have already peaked at 4.9 percent in July and, thus, could average only 4.2 percent by year-end.
The FMIC-UA&P Capital Market
Research said inflation will average 4.6 percent in September; 4.5 percent in October; and 4.6 percent in November.
The group said this is due to the ample supply of rice as the harvest season gets underway and the additional importation of 500,000 metric tons of rice slated to arrive this month.
It added that apart from sustaining export growth, the decision of the city of Manila to lift the truck ban will also help ease the flow of goods in and out of Metro Manila.
Further, the FMIC-UA&P Capital Market Research said United States (WTI) and Europe (Brent) crude oil prices are also expected to continue declining until the first half of 2015. “While the National Economic Development Authority [Neda]still expects full-year inflation to average at 4.4 percent, we prefer to closely monitor the domestic rice and other food prices,” the group, however, said.
In terms of trade, apart from the lifting of the truck ban, the group expects the recovery in the US and modest growth in the European Union and China to boost export growth.
The group said the country’s export growth is on a sustainable level. The country’s export growth in July slowed to only 12.4 percent after the impact of the truck ban in Manila peaked.
Prior to July, exports posted a growth of 21.3 percent in June, a six-month high. The Neda said the country outperformed its Asean counterparts during the period.
“To be sure, its growth trajectory will not have its ups and downs but hardly anyone doubts that its current expansion is sustainable,” the FMIC-UA&P Capital Market Research said.
FMIC-UA&P Capital Market Research also said the peso will further weaken against the US dollar. It expects the peso to average 43.767 to the dollar in August; 44.14 in September; 44.327 in October; and 44.606 in November.