UA&P, FMIC RELEASE JOINT ESTIAMTE IN THE MARKET CALL

‘Q1 GDP likely grew over 6.5%,’ down on-yr

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Growth in the Philippines’ gross domestic product (GDP) likely exceeded 6.5 percent in the first quarter of 2017, reflecting expansion across most sectors although at a slower pace than a year earlier and the preceding quarter, The Market Call said in its latest issue released on Wednesday.

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“Despite a high base in Q1-2016, we think GDP growth in Q1-2017 will exceed 6.5 percent as all indicators, except faster inflation, signal sturdy output expansion in the current quarter,” investment bank First Metro Investment Corp. and University of Asia and the Pacific (UA&P) said in their latest joint issue of The Market Call.

The forecast by FMIC-UA&P for the first quarter is lower than the 6.8 percent expansion achieved by the economy a year earlier and the 6.6 percent rise registered in the last quarter of 2016.

The government has set a GDP expansion target for 2017 in the 6.5 percent to 7.5 percent range, higher than the 6.8 percent full-year growth recorded in 2016.

“The investment-led growth of the economy appears intact in Q1—a robust national government spending and manufacturing output gains in December should spill over into higher employment and consumer spending in Q1,” the think tank said in the report.

Review of Q4 2016

The national government continued to fast track spending on key infrastructure, security and defense projects to post growth in the high teens at 18.8 percent in December, outpacing the meager increase of 1.1 percent in the government’s revenue take, they said.

“As major PPP [public-private partnership] projects have commenced work and government-funded infrastructure spending rides high, the boost in construction activity should show consolidation of economic strength,” the report said.

The think tank highlighted data that showed huge inflows in December brought foreign direct investments to an all-time high of $7.9 billion in 2016.

“We have obtained empirical evidence that manufacturing volume leads investment spending,” the report said.

The publication also noted that strong growth in 14 out of 20 sectors–with 11 posting double-digit gains–triggered the acceleration in the country’s manufacturing output to 23 percent in December.

“The continued rapid expansion of the manufacturing sector, which is also reflected in higher electricity demand, should help sustain the economy’s growth momentum in 2017,” it said.

FMIC and UA&P added that capital goods imports should continue to post gains above 20 percent in the first quarter of 2017 after ending 2016 with a 37 percent increase.

“With bloated domestic demand and exports gaining ground, the first-quarter performance should again signal much vigor in the economy,” the report quoted them as saying.

Philippine exports sales registered a year-on-year increase of 4.5 percent to $4.9 billion in December.

Inflation ‘to stabilize’

“The fly in the ointment pointed to the fastest pace of inflation in 27 months as it reached in February,” The Market Call said.

The report recalled that higher prices in the heavily weighted items brought February inflation to speed up to 3.3 percent.

“While inflation breached 3 percent in February, we think it should stabilize just above it, as crude oil prices have shown limited upside, and food price inflation can slow down with the inflow of more rice imports,” the report added.

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