Slower GDP growth seen in 2nd quarter

MANILA, Philippines — The country is expected to post slower gross domestic product (GDP) growth in the second quarter compared to the previous quarter, but the economy is still seen to expand by six to seven percent for the year despite global and domestic challenges.

During the virtual mid-year economic and capital markets briefing of First Metro Investment Corp. (FMIC) yesterday, University of Asia and the Pacific economist Victor Abola said the economy is seen to expand at a slower pace in the second quarter, despite the country not experiencing a surge in COVID-19 cases during the period.

“I don’t think we will exceed the 8.3 percent in the first quarter. There are constraints also to infrastructure spending,” he said.

He said GDP growth for the second quarter is expected to be “closer to seven percent.”

For this year, the GDP growth forecast is at six to seven percent.

He said it would probably be on the lower side, and would be driven by industry and services.

FMIC president Jose Patricio Dumlao said the Philippine economy is expected to outpace its peers in the region, growing by six to seven percent this year.

The six to seven percent GDP forecast is lower than the government’s revised 6.5 percent to 7.5 percent target for the year.

FMIC expects this year’s economic growth to be driven by sustained domestic demand – household consumption, government and investment spending – which grew by 11 percent in the first quarter of the year.

“The country’s macroeconomic fundamentals remain sound and we have a much better economic situation now than in the past crises. Our gross international reserves (GIR) remain high at $106.8 billion or about nine-months’ worth of imports; external debt-to-GDP is still low at 27 percent; and our trade deficit reached a record high of $43.2 billion in 2021 and could increase to $50 billion this year, which is about 70 percent of our exports,” Dumlao said.

Abola said President Marcos’ economic team composed of experienced officials, and the new administration’s focus on agriculture and infrastructure are seen to be positive for the economy.

He said Marcos’ decision to lead the Department of Agriculture shows the importance attached to the sector, which has been lagging.

For infrastructure, Abola expects the new administration to roll out more public-private partnership projects given the fiscal space constraint.

For inflation, the forecast is at five to 5.2 percent due to the impact of higher oil prices globally, which are affecting the domestic prices of oil, food and commodities.

This is within the revised 4.5 percent to 5.5 percent inflation forecast for the year announced by the Development Budget Coordination Committee last week.

Abola said the prolonged war between Russia and Ukraine would keep fuel and commodity prices elevated.

FMIC expects the local currency to continue its slide due to higher interest rates in the US and increasing trade deficits.

The local currency is seen to hover at P54 to P55 against the US dollar at the end of the year.

As overseas Filipino workers’ remittances are growing consistently, and the business process outsourcing sector provides steady support for the country’s external revenue, Abola said there is a low probability of seeing a credit downgrade this year and in 2023.