First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) expect the Philippine economy to grow by 5.8% this year, amid an improvement in macroeconomic indicators.
In its latest Market Call released on Thursday, the FMIC and UA&P said they raised the Philippine gross domestic product (GDP) forecast to 5.8% for this year from 5.5% previously.
However, this is still slightly below the government’s 6-7% target for the year.
FMIC and UA&P said they expect third-quarter GDP growth to average 5%, still within its earlier forecast of 5-5.2%.
Third-quarter GDP data will be released on Nov. 9.
“We see the cup half full rather than half empty as economic data show resilience of the economy. With the recovery of employment in August and likely until November, the manufacturing subsector has displayed elan together with accelerating output,” they said.
The unemployment rate fell to 4.4% in August, the lowest in three months.
FMIC and UA&P expect Philippine economic growth to be driven by government spending, which should “remain at a high trajectory and provide the main booster as consumers worry about inflation.”
The government has been ramping up spending in recent months after GDP expanded by a weaker-than-expected 4.3% in the April-to-June period.
A 7.1% contraction in government spending in the second quarter was partially blamed for the GDP outturn.
To address low budget utilization, government agencies have been ordered to create catch-up plans for spending. State spending rose by 4.12% to PHP 3.82 trillion as of end-September.
“Beneath ‘apparently weak’ spending growth in August, National Government (NG) spending on current operations and capital outlays soared by 24.7% following through the 28.9% vault in July. NG will continue to ramp up spending for the rest of the year,” they said.
FMIC and UA&P said they expect annual inflation to slow “significantly” in October amid easing Thai rice prices. It also noted that elevated crude oil prices would weaken global growth and demand.
Headline inflation soared to 6.1% in September, its fastest print in five months. It also marked the 18th straight month that inflation breached the central bank’s 2-4% target.
FMIC and UA&P said inflation will likely slow to below 5% by November, which would boost GDP growth in the fourth quarter.
While inflation is on a downtrend, FMIC and UA&P said it will “no longer go below 4% this year.”
“We think (inflation) will ease closer but above 4% by November, as international crude oil and rice prices appear toppish, even as the fourth quarter should benefit from (high) base effect,” it said.
For the full year, FMIC and UA&P see inflation averaging 6.1%, above the central bank’s revised 5.8% full-year forecast.
Inflation averaged 6.6% in the first nine months, higher than 5.1% a year ago
“While a certain pessimism has begun to grip fairly large swaths of people, including policy makers and investors, especially amid the boiling geopolitical — i.e., Hamas- Israel, Russia-Ukraine conflicts, and China’s aggressiveness in the East Asia and Southeast Asian region, we do not share such a cloudy view of the economy,” FMIC and UA&P said. — Luisa Maria Jacinta C. Jocson