Economy seen to grow 6.6-7.5% on consumption, gov’t spending
Donnabelle L. Gatdula (The Philippine Star) - July 5, 2014 - 12:00am

MANILA, Philippines - The Philippine economy will remain stable in the second half of the year, according to First Metro Investment Corp. (FMIC), the investment banking arm of the Metrobank Group.

In their mid-year economic briefing, FMIC president and CEO Roberto Juanchito Dispo said they are projecting gross domestic product (GDP) growth at 6.6 percent to 7.5 percent this year keeping the high end of the forecast earlier announced last January.

 GDP grew by a robust 7.2 percent last year, but showed to a disappointing 5.7 percent in the first quarter of 2014.

But their optimism, Dispo said, is driven by the projected growth in domestic consumption fueled by strong remittances and services, and the continued expansion in the manufacturing sector.

 “The economic outlook for the Philippine economy remains favorable despite a slower-than-expected GDP growth in the first quarter.  Heightened government spending, strong consumer demand and remittances from the over two million OFWs will continue to drive growth.  Confidence in the real economy remains high given the country’s strong external liquidity and investment position, and effective monetary policy,” Dispo said.

However, the FMIC official said aside from the political instability brought about by the issue on pork barrel, there are still risks that may affect growth potential such as rising inflation and interest rates; rise in oil prices due to the damaged oil refineries caused by sectarian violence; the El Niño phenomenon; aggressive policy rate hike by the monetary authorities; slowdown in corporate earnings; and money flowing back to developed markets.

He noted that inflation is expected to further accelerate to four to 4.3 percent, fueled by climbing food and other consumer commodity prices as well as crude oil prices that remain high due to the Middle East and Ukranian crises. This can be offset by weakening peso seen to average at 44-46 to a dollar as a result of the waning euro, which translates to a stronger US dollar.

OFW remittances, on the other hand, will remain resilient at 5.5-6.5 percent, higher than the first quarter figure of 5.2 percent but slower than 2013 growth of 7.4 percent. Remittances will remain robust as demand for skilled Filipino workers remain strong.

Meanwhile, exports will continue to improve at 6-10 percent, underpinned by growth in manufacturing, electronic and mineral products. Imports are also likely to grow at 8-12 percent as all sub-sectors are in positive territory, boosted by raw materials and consumer goods.

Movement in interest rates would be marginal, Dispo said.

T-bill rates are projected as follows: 91-day at 0.9-1.1 percent (bias on one percent), five-year at 3.35-3.65 percent (bias on 3.5 percent), 10-year at 4.05-4.25 percent (bias on 4.25 percent), 20-year at 5-5.5 percent (bias on 5.25 percent) and 25-year at 5.7-5.9 percent (bias on 5.75 percent).

Policy rates, liquidity, inflation and foreign exchange are the factors that continue to affect the short-end yield of the curve.

The long-end of the curve, on the other hand, is affected by the US and EU recovery, liquidity and the government’s borrowing program.

For capital raising, corporate bond issuances will continue to be active in the second half to take advantage of the still low domestic interest rates. The market will stay liquid but the pace may not be the same as the first half considering that most conglomerates have already pre-funded.

He said public private partnership (PPP) program and infrastructure financing would still be in demand.

The FMIC official said there would also be more offshore and onshore mergers and acquisitions in preparation for the ASEAN Integration.



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