Economic rebound seen in Q3
In their latest Market Call report, First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) Capital Markets Research said growth may return to positive territory in the third quarter as most of the economy open up under looser quarantine rules.
Philstar.com/ Irish Lising
Economic rebound seen in Q3
Czeriza Valencia (The Philippine Star) - July 4, 2020 - 12:00am

MANILA, Philippines — A rapid recovery for the domestic economy may not be likely but improvement in output may be seen by this quarter, according to the investment banking arm of the Metrobank Group.

In their latest Market Call report, First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) Capital Markets Research said growth may return to positive territory in the third quarter as most of the economy open up under looser quarantine rules.

The economy is expected to go into a technical recession in the first half of the year with a 0.2 percent decline in the first quarter and a widely-expected worse performance in the second quarter.

“We expect positive GDP growth starting Q3,” the report said, noting that as of this month, mobility restrictions have been loosened in regions that contribute heavily to the economy such as Metro Manila, CALABARZON and Central Luzon.

“The downtrend in the number of deaths provides support for this view. Faster pace of supply chain and transport restorations will keep food prices relatively steady, sufficient to blunt the sharp rise in crude oil prices since late May.”

The report said the likely complete removal of mobility restrictions in these areas after July 15 adds to this optimism but risks remain tilted to the downside as the limited availability of public transportation and prevailing fear of contagion may slow down the return of workers to construction sites and manufacturing facilities.

Nonetheless, FMIC and UA&P expect unemployment to ease in the third quarter as firms implement stringent health protocols in workplaces.

“The magnitude in the loss of jobs reported in April will likely not show up again in the next employment survey in July (for release in early September). Indeed, firms have put up stringent health protocols in their workplaces and their workers,” the report said.

“The downward trend in weekly deaths due to COVID-19 would suggest that these will be minimal (below 15 per week by the end of August). If our projections hold, we would have close to normalization by Q4.”

Even with the acceleration of economic activity in the third quarter, growth in inflation will remain subdued as consumer spending may not recover as fast as people may feel the need to save more for unexpected events such as the start of the typhoon season and the slow flow of financial support from the government.

While money growth accelerated in April, banks may not lend as heavily as they expect more defaults in the short-term.

“However, banks need to be less risk averse and lend more as BSP (Bangko Sentral) has already put in more liquidity into the financial system with its 50 basis points cut in June. Hence, we think that BSP may still cut policy rates by another 25 bps in late second half should the economy need a further boost,” said the report.

FMIC
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