A substantial pick up in government spending plus low inflation will help the economy grow at a brisker pace in the fourth quarter according to a joint think tank report released Monday.
First Metro Investments Corp. (FMIC) and the University of Asia and the Pacific (UA&P) in the December issue of The Market Call said the 5.3 percent gross domestic product (GDP) in the third quarter highlighted challenges like the truck ban in Manila, weak agriculture, and higher inflation.
The joint think tank said a robust private sectors’ performance will also help push growth.
“While our optimism has waned slightly, we do expect a rebound in the fourth quarter. The removal of Manila’s truck ban, the national government’s likely ability to spend again during the quarter, and the late rice harvests should push output at a quicker pace than in third quarter,” it stated.
FMIC and UA&P noted that the government has been vocal about catching up with their proposed investment development plans despite the slowing down of public spending in October to 6.4 percent from 9.5 percent in September.
“Lately, national government has been pouring investments on infrastructure sector aside from the social services and education sectors. Note that by 2016, national government targets infrastructure development to be at 5 percent of the country’s GDP,” they stated.
The report added that inflation appears to have peaked in July and August at 4.9 percent as it continued to fall to 4.3 percent in October.
It also noted that November inflation further eased to 3.7 percent, its lowest this year, amid price decelerations in some food commodities, petroleum, and electricity.
“Besides, lower inflation should provide firepower to consumers with more purchasing power to spend more in the fourth quarter,” it said.
The joint think tank believes that inflation will continue to decelerate to about 3.8 percent by end 2014 amid expectations of continuing price reduction in WTI and Dubai crude oil’s international price and the food–especially, rice—supply normalization.
While growth indicators for the fourth quarter are improving, FMIC and UA&P said the Philippines still likely grew below the 6.5 percent to 7.5 percent government target this year.
It projected the Philippine GDP to expand by only 6 percent for full-year 2014 from the 7.2 percent expansion recorded in 2013.