Despite inflation, 2022 growth could hit 6-7%

DESPITE surging inflation, the Philippine economy remains on track to posting a full year growth of 6 to 7 percent this year, according to a local think tank.

In its latest Market Call report, First Metro Investment Corp.-University of Asia and the Pacific (FMIC-UA&P) Capital Market Research said, however, that GDP growth in the second quarter will be slower than the first quarter’s 8.3 percent.

Data from the Philippine Statistics Authority (PSA) showed inflation was above 5 percent in the second quarter or the April to June period. Second quarter GDP, meanwhile, grew 12 percent in 2021.

“Given the positive data and improved consumer sentiment, the economy will continue to recover rapidly, albeit at a slightly milder pace. We still see the economy expand by 6 percent to 7 percent for the entire year,” the report stated.

FMIC-UA&P Capital Market Research said their optimism for the year stemmed from expectations that infrastructure spending is expected to accelerate in the second half of the year.

The think tank said this will be fuelled by better fiscal space as tax revenues recover during the period. Part of the improvement in tax revenues is the positive impact of the peso depreciation on sectors like the Business Process Outsourcing (BPO).

The peso depreciation against the dollar, FMIC-UA&P Capital Market Research said, will also benefit Overseas Filipino Workers, who will enjoy higher remittances. It added that the country’s export sector will also benefit.

“We see the peso depreciation to boost income of some 70 million Filipinos and offset likely softer consumer spending due to the elevated inflation. We expect a short-run respite for the peso with the US dollar weakening from its peak and Philippine trade deficit lower in H2 [second half of the year] from record highs in May and June,” the think tank said.

FMIC-UA&P Capital Market Research said the country’s growth this year will also be supported by the 453,000 additional jobs created as of May which was a partial rebound from a decline in April.

Further, manufacturing PMI for July clocked at 53.8, the fifth consecutive month of expansion while capital goods imports surged by 21.8 percent in May.

Even National Government (NG) spending when adjusted for one extraordinary item, it added, still expanded by 7.5 percent in May.

On Tuesday, Bangko Sentral ng Pilipinas Governor Felipe Medalla hinted at lowering their inflation forecast for next year, as favorable global developments may bode well for local prices in 2023.

Medalla said they are looking at revising their current forecast of 4.3 percent downward nearer the ceiling of their 2 to 4 percent target range. (Story here: https://businessmirror.com.ph/2022/08/03/bsp-chief-sees-local-prices-easing-in-2023/)

The PSA will release the official inflation estimates for July on Friday while the National Income Accounts for the second quarter will be released next week.

Image credits: Nonie Reyes