UA&P: Philippines economy likely to grow 5% in H2

MANILA, Philippines — The Philippine economy may bounce back and post growth of around five percent in the second semester, supported by higher infrastructure spending, according to the University of Asia and the Pacific (UA&P).

In its Market Call Capital Markets Research report for May, UA&P said it expects weak gross domestic product (GDP) growth in the first half due to the unresolved flood control scandal and high oil prices stemming from the Middle East conflict.

“Growth could recover to around five percent in H2 (second half) on base effects and a ramp-up in NG (national government) infrastructure spending,” it said.

First quarter GDP growth came in at 2.8 percent, the slowest pace in five years, amid the flood control scandal and oil crisis.

The first quarter growth outturn was slower than the previous quarter’s three percent growth print and below the government’s full-year target of five to six percent.

Compared to its neighbors, UA&P said the Philippines is more exposed to sustained oil shocks given the country’s heavy reliance on fuel imports.

“Growth is likely to stay soft until infrastructure spending resumes later this year, while second-round price pressures could drive inflation closer to double digits,” UA&P said.

It said that it expects inflation to stay above target for the rest of the year.

Inflation soared to 7.2 percent in April, its highest level in over three years, as the oil price shock triggered overall price increases.

This brought average inflation in the January to April period to 3.9 percent, above the government’s two to four percent target band.

As oil prices stay elevated, UA&P said that the peso is likely to remain under pressure, but support exports and remittances.

UA&P also said that it expects the Bangko Sentral ng Pilipinas (BSP) to enter a short tightening phase to stem inflationary risk from the oil price shock.

“Our outlook pencils in 75 more bps (basis points) of rate hikes for this year, bringing the policy rate to 5.25 percent,” UA&P said.

Last month, the BSP raised its key policy rate by 25 bps to 4.50 percent.

Despite commentary from some analysts, UA&P said that the Philippines is not in stagflation mode or a condition of slow growth, high inflation and elevated unemployment.

“Inflation, while elevated, will continually trek downwards after a (Middle East) peace deal gets signed and growth will return when infrastructure spending resumes along with consumer and business confidence,” UA&P said.