THE country’s GDP growth may exceed 7 percent in the first quarter if the global economy does not weaken further and inflation is kept at bay, according to a local think tank.
In its latest Market Call report, the First Metro Investment Corporation-University of Asia and the Pacific (FMIC-UA&P) Capital Market Research said GDP growth may reach 7.1 percent in the first three months of the year.
This, the local think tank said, will be driven by recent employment gains; robust consumption fueled by tax cuts and slower inflation; manufacturing growth; and the increase in national government spending.
“We expect a more robust economy in Q1-2023 than most analysts with a GDP growth of 7.1 percent YoY, albeit with a little downside risk. The income tax cut and the downward trend in inflation should provide support although the recent crude oil price surge—due to huge OPEC production cut—would clip that partially,” FMIC-UA&P Capital Market Research said.
The OPEC decision to reduce production caused the recent spike in oil prices. The think tank said because of this, it expects the Bangko Sentral ng Pilipinas (BSP) to raise interest rates by 25 basis points in May 2023.
“Since we do not see a decline in actual CPI (Consumer Price Index) in April and May, BSP will likely proceed with raising its policy rates by 25 bps in its May meeting. However, we expect a pause thereafter,” FMIC-UA&P Capital Market Research said.
Nonetheless, the local think tank still expects inflation to slow to around 6.2 percent by June, despite the recent spike in oil prices. The slowdown in the increase in food prices will offset the increase in fuel prices.
This, along with employment gains, manufacturing growth and higher government spending, will lead to faster economic growth.
FMIC-UA&P Capital Market Research said the 8.6 percent increase in employment as of February 2023 was driven by the recovery of the Services sector.
“(This) becomes more instructive when we consider that huge temporary employment for the May 2022 elections bloated year ago figures. The huge vault in business expectations should provide further backing to this,” the think tank said.
While the growth of the country’s manufacturing sector slowed according to Standard & Poor’s Global Purchasing Managers’ Index (PMI) report, FMIC-UA&P Capital Market Research said the sector continued to expand.
The think tank noted that the manufacturing sector expanded for the 14th consecutive month based on the PMI, while the Volume of Production Index “showed spritely growth in the first two months of 2023.”
The reopening of hotels and restaurants as well as tax cuts that took effect in January 2023 are also contributing to the growth of the manufacturing sector.
Household, govt spending
Meanwhile, household and government spending have been robust on the back of employment gains and overseas Filipino workers’ (OFWs) remittances as well as various public infrastructure projects.
The think tank said government spending, in particular, is expected to be robust as various projects continue or have hurdled key obstacles.
It noted that these projects include the Metro Manila Subway, North-South Commuter Line gaining traction, and major Public Private Partnership (PPP) projects.
These PPP projects are NLEX-SLEX second connector elevated tollway, MRT-7, Cavite-Laguna Expressway (CALAX), and the extension of LRT-1 to Cavite.
“Government (NG) spending on operating and capital costs also had YTD (year to date) growth of 12.2 percent, not readily visible from the weak total NG spending due to a beneficial sharp reduction in interest payments (-13.4 percent) and allotments to local government units (-14.8 percent),” the think tank said.
Earlier, the Asian Development Bank (ADB) said high inflation, tight monetary policy and global headwinds are expected to slow the country’s economic performance this year and next year.
The Manila-based multilateral development bank forecasts GDP growth to slow to 6 percent this year before growing to 6.2 percent next year. The country’s growth last year was 7.6 percent while the government’s GDP growth target is 6 percent this year.
However, the country’s inflation rate this year is expected to outpace GDP growth. Inflation is forecast to average 6.2 percent in 2023 before slowing to 4 percent in 2024.
Image credits: Nonie Reyes